Short On Cash, Some Farmers Will Sell Assets During Winter

Low commodity prices and high costs are tightening the credit squeeze on the farm sector, with little expectation of improvement in the near term, according to ag bankers in the Midwest and Plains. Some farmers and ranchers will liquidate assets during the winter to stay afloat, and some highly leveraged operators will be forced out of business, the bankers said in quarterly reports released by the Chicago and Kansas City Federal Reserve banks on Thursday.

“Ag credit conditions continue to move downward,” said economist David Oppedahl of the Chicago Fed in a video summary. “Bankers told us they are expecting to see a higher level of foreclosures and some sell-offs, possibly some equipment and land, over this winter.”

An Indiana banker who took part in the Chicago Fed survey said, “I expect this market will eliminate highly leveraged operations and allow others to expand their operations,” and an Illinois banker wrote that “trade issues [are] causing most of the uncertainty and stress” among farmers. Slightly more than half — 54% — of the bankers anticipated there would be more forced sales or liquidations of farm assets by financially distressed farmers in the next three to six months than there were during the same period a year ago.

Bankers in the Kansas City Fed district, covering the central Plains, said they expected farm income and agricultural credit conditions, which worsened during the summer, to decline during the winter. “Most bankers pointed to an ongoing environment of low agricultural commodity prices and elevated costs as the primary factors contributing to the weakness,” said the regional Fed.

“Similar to last year, about half of district bankers indicated they expect at least 5% of their borrowers to sell assets before year-end,” said the Kansas City Fed. “Almost all survey respondents indicated they expect some borrowers to liquidate assets in coming months, a sign of broad impacts from persistent weaknesses in the sector and long-lasting pressure on farm finances.”

“A solid majority” of bankers surveyed by the St. Louis Fed reported a decline in farm income during the summer compared with the summer of 2018. “Moreover, bankers expect farm income to decline again next quarter compared with the same period last year.”

Farmland values were steady in the Kansas City district, down by 1% in the Chicago district, and down by 1.7% for “quality” land in the St. Louis district.