The nation's farmers are struggling to pay back loans after years of low crop prices and export markets hit by tariffs, with a key government program showing the highest default rate in at least nine years.
Many agricultural loans come due about Jan. 1, in part to give producers enough time to sell crops and livestock and to give them more flexibility in timing interest payments for tax-filing purposes.
"It is beginning to become a serious situation nationwide at least in the grain crops — those that produce corn, soybeans, wheat," said Allen Featherstone, head of the Department of Agricultural Economics at Kansas State University.
While the federal government shutdown delayed reporting, January figures show an overall rise in delinquencies for those producers with direct loans from the Agriculture Department's Farm Service Agency.
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Nationwide, 19.4 percent of FSA direct loans were delinquent in January, compared with 16.5 percent for the same month a year ago, said David Schemm, executive director of the FSA in Kansas. During the past nine years, the agency's January delinquency rate hit a high of 18.8 percent in 2011 and fell to a low of 16.1 percent when crop prices were significantly better in 2015.
While those FSA direct loan delinquencies are high, the agency is a lender of last resort for riskier agricultural borrowers who don't qualify for commercial loans. Its delinquency rates typically drop in subsequent months as more farmers pay off overdue notes and refinance debt.
With today's low crop prices, it takes high yields to mitigate some of the losses and even a normal harvest or a crop failure could devastate a farm's bottom line.
Many bankers also are concerned about farm conditions. Several of the Nebraska bankers interviewed for the most recent Ag Credit Survey from the Kansas City Federal Reserve, released Feb. 14, said they expect farmers to have to refinance loans or sell assets to increase working capital and shore up debt and liquidity positions.
The situation now is not as bad as the farm credit crisis of the 1980s — a time of high interest rates and falling land prices that was marked by widespread farm foreclosures. At the height of that crisis in 1987, U.S. farmers filed 5,788 Chapter 12 bankruptcies. There were 498 in 2018.
However, those bankruptcy numbers are climbing, especially in the Plains and Midwest. Nebraska had more farm-related bankruptcies in 2018 than every state except Wisconsin, and the numbers, though small, have tripled since 2015.
Some fears are also surfacing in reports such as one this month from the Federal Reserve Bank of Minneapolis, which said the outlook is pessimistic for the start of this year, with respondents predicting a further decline in farm income. About 36 percent of farm lenders who responded said they had a lower rate of loan repayment from a year earlier.
Creighton University Economist Ernie Goss' February survey of rural bankers in parts of 10 Plains and Western states showed that nearly two-thirds of banks in the region raised loan collateral requirements on fears of a weakening farm income. The Rural Mainstreet survey showed nearly one-third of banks reported they rejected more farm loan applications for that reason.
Grain prices are down because farmers around the world have had above-average production for several years. But some nations' economies are not doing as well, decreasing demand for those crops, Featherstone said. Grain prices peaked in 2012 and prices have roughly fallen 36 percent since then for soybeans, 50 percent for corn and 48 percent for wheat.
When President Donald Trump imposed tariffs, China retaliated by stopping soybean purchases, closing the biggest U.S. market. While trade negotiations with China continue, many farmers fear it will take years for markets to recover — as it did when President Jimmy Carter imposed a grain embargo on the then-Soviet Union in 1980.