Ag credit stress runs hot and cold

Harvest 2016 isn't officially over, but already predictions of a fourth and fifth consecutive year of grim commodity prices in 2017 and 2018 are putting a damper on agricultural lenders' attitudes. Those attending the American Banker Association conference in Indianapolis, Indiana, this week described attitudes anywhere from relative calm in parts of the Corn Belt to severe distress in cotton and cattle country. "Most ag lenders have a few big customers they are worried about, a few others straddling breakeven and a few doing fine," said Nate Kauffman, assistant vice president and Omaha branch executive for the Federal Reserve Bank of Kansas City. However, over 90% of lenders in the Kansas City district report deterioration in working capital levels among farm borrowers. Roughly 60% of lenders report increases in ag loans placed on "watch" lists, about double the level of a year ago. Lenders are also hiking collateral requirements and raising interest rates to reflect risks.  "You can see which way the trend is going this year," Kauffman added. "Agriculture is going through a period of transition. Profitability in crops is still poor, and adding to the stress is that there have been rare selling opportunities for the livestock sector."  Harvest 2016 isn't officially over, but already predictions of a fourth and fifth consecutive year of grim commodity prices in 2017 and 2018 are putting a damper on agricultural lenders' attitudes. Those attending the American Banker Association conference in Indianapolis, Indiana, this week described attitudes anywhere from relative calm in parts of the Corn Belt to severe distress in cotton and cattle country.  "Most ag lenders have a few big customers they are worried about, a few others straddling breakeven and a few doing fine," said Nate Kauffman, assistant vice president and Omaha branch executive for the Federal Reserve Bank of Kansas City. However, over 90% of lenders in the Kansas City district report deterioration in working capital levels among farm borrowers. Roughly 60% of lenders report increases in ag loans placed on "watch" lists, about double the level of a year ago. Lenders are also hiking collateral requirements and raising interest rates to reflect risks.  "You can see which way the trend is going this year," Kauffman added. "Agriculture is going through a period of transition. Profitability in crops is still poor, and adding to the stress is that there have been rare selling opportunities for the livestock sector."