CHICAGO — Midwest bankers reported that the percentage of farm loans their customers are having problems repaying hit a 20-year high in the second quarter of this year, a survey released Thursday by the Federal Reserve Bank of Chicago found.
Farm incomes also dropped for the period, as record floods devastated a wide swath of the Farm Belt and the trade war between the United States and China entered its second year.
“The portion of the district’s agricultural loan portfolio reported as having ‘major’ or ‘severe’ repayment problems (6.2 percent) had not been higher in the second quarter of a year since 1999,” the report said.
That drop in farm incomes also weighed on farmland values, which were down 2 percent for the quarter after being adjusted for inflation, according to the survey of 157 bankers across the 7th Federal Reserve District. The district encompasses Iowa, parts of northern Illinois and Indiana, southern Wisconsin and the lower peninsula of Michigan.
The state with the biggest dip in farm valuations in the second quarter — Iowa — was down as much as 3 percent in some areas.
The districtwide dip was the first year-over-year decline since the third quarter of 2017, according to the report.
But bankers did say they expect farmland values to stabilize, at least in the short term.
Bankers reported that while farmers’ demand for operational and other non-real estate farm loans was higher in the quarter than a year earlier, “the availability of funds for lending by agricultural banks was lower.” Banks had fewer funds available to lend in the second quarter of 2019 than a year ago, the report said.
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Bankers also said nearly 70 percent of their farm customers were either significantly or modestly affected by flooding and other adverse weather this year.
A “bomb cyclone” storm this spring overwhelmed levees on the Missouri River, inundating large tracts in eastern Nebraska and western Iowa — even damaging stores of soybeans and corn farmers had socked away in hopes the trade war would cool off.
The floods added more pain for farmers who have also been hurt by low crop prices and the trade war between Washington and Beijing, which has slashed shipments of U.S. agricultural products to China.
Due to wet conditions this spring that delayed planting in many places, bankers are expecting poor corn and soybean yields from their farmer customers this harvest. The trade war also is expected to hold commodity prices down.
“It seems unlikely that these prices will rise enough to compensate for lost output, so the profitability of many corn and soybean farms will almost surely fall from their 2018 levels — possibly by a lot for some,” the report said.