Farm credit conditions deteriorate, bankers say

Agricultural credit conditions continued to deteriorate in the fourth quarter of 2015, according to a survey of bankers in the Seventh Federal Reserve District that includes Iowa.

A report released Thursday by the Federal Reserve Bank of Chicago said repayment rates on non-real-estate farm loans were much lower in the October-through-December period compared with the same quarter of 2014. The bankers said higher rates of loan renewals and extensions reflected a tighter credit environment.

David Oppedahl, Chicago Fed senior business economist, said in the report that 45 percent of the bankers responding to the survey reported higher rates of loan renewals and extensions in the fourth quarter of 2015 compared with the fourth quarter of 2014, while only 3 percent reported lower rates.

'The volume of the farm loan portfolio reported as having ‘major' or ‘severe' repayment problems rose to 5 percent in the fourth quarter of 2015, up 2.1 percentage points from a year earlier,” Oppedahl said. 'Forty-three percent of the survey respondents noted their banks had tightened credit standards for agricultural loans in the fourth quarter of 2015 relative to the fourth quarter of 2014,”

Earlier this week, the U.S. Department of Agriculture projected farm net incomes in 2016 will drop to $54.8 billion, down almost 3 percent from 2014, as sharply lower prices for corn, soybeans and wheat continued to reduce cash flow and negatively impact farmland values.

With lower cash flow and higher spending on farm operations, the bankers projected 1.9 percent of their customers with operating credit in 2015 were not likely to qualify for new operating credit this year.

Oppedahl said the district experienced a 3 percent annual decrease in the value of 'good” farmland in 2015, equaling the yearly decline in 2014 and marking the first consecutive annual decline since the 1980s.

'In the fourth quarter of 2015, Illinois, Indiana, Iowa, and Michigan experienced year-over-year declines in agricultural land values, whereas Wisconsin experienced a small rise,” he said. 'Although agricultural land values fell again in 2015, the five states' corn harvest was the third largest ever and the soybean harvest was the largest ever.”