Ag Lenders Take Caution

The winter/spring of 2017 did not see the financial shake-out many financial experts expected after three consecutive years of declining net farm income. In fact, lenders and other ag industry representatives at the Kansas City Federal Reserve Bank's annual Ag Symposium last week were not wringing their hands -- yet. There are pockets of more severe financial strain, such as dryland wheat country in the western Plains and in the Southeast U.S., though lenders at the symposium did not report an excessive amount of troubled loans."We've had to rely on equipment equity and land equity as farmers re-balanced their loan portfolios [this winter]," reported Rob Keil, senior vice president and chief credit officer with Dacotah Bank in Aberdeen, South Dakota. "Working capital has disappeared," said Keil, "as we are in our fourth year of [cash flow] bleeding." Land values are staying relatively stable -- on highly productive ground. For example, central Iowa land sales in May brought $10,000 to $10,500 per acre on highly productive (CSR2 above 90) 80-acre parcels, according to Peoples Company, based in Clive, Iowa. This, despite farm incomes that are about half of their peak of 2013, said Nate Kauffman, assistant vice president and Omaha Branch Executive, Federal Reserve Bank of Kansas City.Kauffman reported, "Despite increases in financing needs by farmers and ranchers, we're not seeing delinquencies rising much" in the 10th Federal Reserve Bank district. That district covers Nebraska, Kansas, Oklahoma, Wyoming, Colorado and parts of Missouri and New Mexico."Soybeans paid the bills last year," noted White Cloud, Kansas, farmer Ken McCauley, president of the Kansas Corn Growers. "As for corn, I'm still trying to sell last year's crop."Lower input expenses helped, McCauley said. "Fertilizer was the big one; seed costs were stable for a change, and cash rents declined some. Our cash input costs this year went down $50 an acre compared to last year. That really helped, especially with our banker," McCauley added.