Nov 20, 2020

Ag lenders see limited profits in 2021
Iowa PBS

By: Peter Tubbs

The American Bankers released their look at 2021 for rural America.
Peter Tubbs looks at the findings.

Multiple years of low farm commodity prices have compressed the profitability of America’s farms, according to the 2020 Agricultural Lending Survey, and joint project of the American Bankers Association and the Federal Agricultural Mortgage Corporation, commonly known as Farmer Mac.

Jackson Takach, Federal Agricultural Mortgage Corporation: “I think the ag lenders, uh, all across the country are really tuned into the performance of their borrowers. And I think, uh, several years of lower commodity prices have really impacted ag lenders, uh, um, attitudes and expectations about the performance of both the loan portfolios, as well as the ag economy.”

A majority of U.S. agricultural lenders saw a profitability decline among farm operations, and are estimating only 51 percent of farm borrowers will be profitable in 2020, down six percentage points when compared to last year. Nearly half of all agricultural lenders aren’t expecting any kind of improvement in 2021, and believe grain, dairy and cattle sectors are under the most pressure.

Those banks participating in the survey noted 87 percent of borrowers increased their dependence on government subsidies. Lenders stressed that the loss of cash support from Washington would reduce farm profitability.

Farmer Mac sees taking the long view with farm borrowers in 2021.

Producers looking at their 2021 budgets may see tight margins, and some are exploring restructuring their financial situation. Twenty percent of borrowers asked for loan modifications in 2020.

Jackson Takach, Federal Agricultural Mortgage Corporation: “So lenders are seeing that uptick in demand. A lot of that has to do with, uh, restructuring the balance sheet, uh, taking some of the equity out, putting it back into working capital. So all that is happening.”

The survey was conducted in August and early September before the recent run up in commodity market prices, and may have an overly dark view of the agricultural economy in the short run, but long term concerns about farm profitability remain. Lenders believe the demand side of the market equation offers the most hope for improving profitability.

Jackson Takach, Federal Agricultural Mortgage Corporation: “How are we going to increase demand for agricultural products and how are we going to support that demand all the way through the markets. That’s really where you get long-term growth in, in an increase in, in the, um, uh, profitability levels, long term. It’s going to be those broader questions that ag lenders are definitely tapping into throughout this survey.”

For Market to Market, I’m Peter Tubbs
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