Farmers borrow less, and tariff payments may be why
Agricultural lending declined during the second half of 2019, and while that reflected lower production costs, it “likely also was due to an increase in revenue from government payments (Market Facilitation Program) connected to trade disputes that lingered through the year,” said the Federal Reserve on Thursday. In a quarterly report, the Fed said lending activity fell by 5% in 2019 compared to 2018, driven by less demand for operating loans, which producers use to pay their bills while waiting to sell crops or livestock.
“Despite decreasing from a year ago, farm lending volumes remained higher than the 20-year average,” said the Ag Finance Databook. “Overall persistent weaknesses in the farm sector have continued to stimulate strong demand for agricultural lending, although Market Facilitation Program payments in the second half of 2019 and relatively strong crop yields may have curbed demand in the fourth quarter.” Beginning in August and running through early January, the administration issued $10.8 billion in MFP payments to farmers and ranchers.
Production expenses, which peaked in 2014, fell in 2019. “Similarly, farm operating and livestock loans have declined about 9% since 2014,” said the Fed. It credited lower crop input costs and lower costs for livestock feed.
Farmland values remained steady, changing by less than 2%. “Declines were slightly larger in the northern-most states during the third quarter, but remained modest; values increased slightly in Texas and Oklahoma,” said the report, which is produced by the Kansas City Federal Reserve. The Databook is based on surveys of farm bankers by Federal Reserve banks in Chicago, Dallas, Kansas City, Minneapolis, and St. Louis.
The Ag Finance Databook is available here.