(NAFB) Financial pressure is building in farm country. The Federal Reserve Bank of Chicago reports agricultural credit conditions across the Upper Midwest weakened during the second quarter compared to a year ago. The bankers in the survey cite commodity price volatility, high production costs, and tighter cash flow as key challenges. Chicago Fed Policy Advisor David Oppedahl says the share of farm loans showing major or severe repayment problems climbed to its highest level since 2020.
“There are certainly issues with cash flow that are challenging repayment of loans. So there has been an increase in the number of loans that are facing both problems of, you know, a severe and a higher category. You know, there are fewer that are not having any repayment problems, though that’s still, you know, almost 90%. So the vast majority of loans are not seeing repayment problems, but the problem ones are creeping up again to a little higher level after some really low years.”
Rather than borrowing to expand acreage, build new facilities, or upgrade equipment, Oppedahl says many operations are focused on maintaining cash flow and covering operating expenses.
“I think it’s really kind of been a period where they’ve had to take out operating loans and there’s a lot of interest in those. Our data shows an increase in demand from a year ago that’s been consistent over the last few years as, you know, working capital is, you know, tight right now for many operations. And so you have to delay some of the other kinds of, you know, uses for your loans that you might, you know, might have normally bought a new tractor or done something with purchasing some additional ground or, you know, build some, you know, grain storage, things like that. And those kinds of loans, the demand is down for. So right now it seems that, you know, they’re kind of hunkering down a little bit and trying to focus on the essentials of their operation. And then as times get a little better, hopefully they’ll be able to buy the tractors and things that they’ve put off, you know, for a little while.”
Looking ahead, Oppedahl says lenders are watching closely for signs of improvement in farm income and overall economic conditions.
“Well, there was one individual that talked about plateauing of farmland values. So maybe that’s what we would highlight in terms of the majority of the respondents. In fact, it was 81% anticipated that farmland values would be stable in the next quarter. And that kind of would, I think, illustrate what you’re asking in terms of their take on the economy that, you know, it’s not going to be really growing right now. It’s, you know, facing some challenges, and we see that in the lending, you know, especially for operating loans like we just discussed. So it’s a period of a little retrenchment, but at the same time, you know, hopefully there’ll be, you know, a good crop this year and that’ll help to finance into the next year.”
The Chicago Fed’s latest survey shows farmers are facing tighter margins and greater financial stress. This is leading to higher demand for operating loans and more repayment challenges. As Policy Advisor David Oppedahl explained, lenders are cautiously optimistic that improved farm income could help stabilize conditions ahead.
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Audio and video provided by NAFB News Service
Audio and video with David Oppedahl, policy advisor, Federal Reserve Bank of Chicago
