Nov 22, 2019

Ag lenders rank farm liquidity as top concern for 2019

Agricultural lenders view liquidity as the top concern this year, according to a recent survey conducted by the American Bankers Association (ABA) and Farmer Mac.

They also predict the number of farm bankruptcies could continue to edge higher into 2020, although nowhere near the level witnessed during the 1980s farm crisis.

“The challenges facing the ag and farming community are acute,” Rob Nichols, ABA president and CEO, said at the Agricultural Bankers Conference in Dallas. “Between weather, commodity prices, trade and tariffs, those are significant challenges.”

The majority of ag bankers who participated in the survey, 82.5%, report a decline in profits for their customers this year. In fact, just 57% of their ag borrowers were profitable in 2019.

The sectors of most concern to ag lenders include dairy, crop production and beef.

“The farm profitability picture remains tight in 2019, and ag lenders see that come through their customers’ financials,” said Jackson Takach, chief economist for Farmer Mac.

Ag lenders’ other top concerns in this year’s survey include farm level income, total leverage, uncertainty around trade and weather.

“Our markets are closely tied to what happens in the rest of the world,” said Jim Chessen, ABA chief economist. “New export orders are down significantly since 2018.”

With multiple years of tight margins, it’s no surprise more than one-third of ag lenders expect an increase in bankruptcies in the year ahead. In the 12-month period ending September 2019, Chapter 12 farm bankruptcies increased 24% from the previous year and reached the highest level since 2011.

About 63% of ag lenders subsequently predict an increase in farm retirements in 2020, which could lead to an increase in the supply of farmland on the market. Most ag lenders also expect a slight decline in land values, less than 10%, in the coming year.

Lenders believe farmers will continue to look for ways to cut production costs and improve efficiencies in response to the tight margins.

“Bankers are naturally concerned for their farmers and ranchers,” Chessen said. “While uncertainty has risen, banks are well prepared to continue their support for the ag community through these challenging times.”

Shan Hanes, president and CEO of Heartland Tri-State Bank in Elkhart, Kansas, recommends farmers run a breakeven analysis on their farms to always know their breakeven price of commodities and costs.

Anthony Hotchkiss, director of ag banking for Regions Bank in Clayton, Missouri, also recommends farmers run a cost analysis for their operations and look for ways to improve efficiencies, such as through the adoption of new technology.

“It’s great adopting new technology, but it’s just as important to evolve your business on the management side,” he said. “You can’t keep always doing it how you did it in the past. (Farming) is getting more complex. Focus on the margins you’re trying to achieve.”

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