A new joint study by the Kansas State University Department of Agricultural Economics and the University of Georgia shows lenders from across the nation are expecting the financial outlook for farmers to tighten in the upcoming seasons.
The 2016 Spring Ag Lender Survey shows the current financial conditions are taking a downturn due to an expected increase in nonperforming loans and land devaluations that are causing land leasing issues. Lower commodity prices have had an immediate effect on producers, but there may be more trouble ahead as leveraged farmers are feeling the pressure from lower grain and livestock prices.
Christine Wilson, K-State agricultural economics professor said, “The survey shows lenders are observing the tightening fiscal conditions, and expected falls in land values as a key indicator in an expected increase in nonperforming loans.”
“With these crop prices, expect a significant gut check by the producers,” said a survey participant, adding that farmers are facing a significant challenge.
The survey points to lenders seeing a need for increasing risk premiums for agricultural lending. From the fall season of 2015 to the spring of 2016, lenders noted that the number of non-performing loans rose for total farm loans. Lenders are expecting the number of non-performing loans to continue to rise, particularly for the corn and soybeans, wheat, and beef sub-sectors.
Demand for farm operating loans remains high as liquidity and cash flows are problematic for many producers, according to the study. Lenders report elevated cash rental rates and a slow adjustment to the lower commodity prices seen in today’s market.
K-State’s Department of Agricultural Economics conducts the Ag Lender Survey semi-annually to capture short- and long-term assessments for the future of the agricultural credit environment.
More information is available at http://www.ageconomics.k-state.edu/research/ag-lender-survey/index.html.