Bankers Toughen Loan Terms for Farmers

December 14, 2016

By Chuck Abbott

Amid “a growing sense of risk in the farm sector,” bankers across the U.S. are demanding farm real estate as collateral on short-term operating loans, says the Ag Finance Databook compiled by the Kansas City Fed. Real estate provided one third of the collateral on loans of $250,000 or more issued during the summer vs. 10% a year earlier. It was an abrupt reversal of the five-year decline that began during the ag boom.

Interest on non-real estate loans is shifting higher. Some 85% of loans carry a floating rate, for only the second time since 1977. The average maturity period for loans, for only the third time since 1997, exceeds 14 months. Together, those actions indicate modest adjustments in loan terms in response to additional risk created by weaker profit margins and reduced cash flow. Repayment rates are slipping, as more producers ask for loan extensions or renewals.

The quarterly Databook notes the challenge to bankers – and farmers – posed by forecasts of weak profit margins, continued declines in land values, and a slump in loan repayment rates.

“If expectations hold, a slow but steady increase in farm financial stress appears likely to continue,” says the Kansas City Fed in a separate report. MetLife Agricultural Finance forecasts a “moderate repricing” downward of farmland values through 2018.

This article was produced in collaboration with the Food & Environment Reporting Network, an independent, nonprofit news organization producing investigative reporting on food, agriculture, and environmental health.

From: Successful Farming

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Category: Agriculture