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Tuesday, November 15, 2016

Betting the Farm and Losing: Banks Seek Collateral as Debts Rise

Betting the farm on record crop, livestock and dairy prices has turned into a losing investment for an expanding share of America’s agricultural heartland. The level of debt to income is the highest in three decades, and growers are increasingly unable to make loan payments.

Four years after record U.S. crop and farmland values boosted purchases of land and equipment, a global surplus has sent prices tumbling and farm income into the longest slump since 1977. The Federal Reserve says growers are borrowing more to pay bills, repayment rates are plunging, and the number of bankers requesting additional collateral is the highest in 25 years.

While low interest rates and savings from big paydays not long ago have kept farmers in better financial shape than the bankruptcy crisis of the mid-1980s, signs of stress are increasing, especially for growers who invested during the boom years. Farm income is down 42 percent from a record in 2013, government data show, and MetLife Agricultural Finance predicts farmland values will tumble 20 percent by 2018.

“Unquestionably, some farmers are not going to make it,” said Dan Kowalski, director of research at CoBank, an agricultural lending cooperative based in Greenwood Village, Colorado. “If they made aggressive growth decisions and did it with debt, that won’t work out well. Credit quality is starting to slip on the farm and smaller agricultural businesses. Bankers are asking if they have the cash flow to pay bills.”



Anonymous said...

Sorry, but those who can't make it should've considered changes in the market and not gotten so greedy.

Anonymous said...

The next two big bubbles are the Auto loans financing and student loans. Not enough jobs or good paying jobs to make payments on these loans. Most students owe over 80K or more on these loans. Car prices are out of reach for most people. Financing some of these loans for up to ten years paying over 600 or more per month. There comes a point where you say, F it!!! I'll just walk away from it.

Anonymous said...

There's no indication in this assessment of how many farmers or what percentage of farmers in varying sized farms are affected. The stats are therefore incomplete.

As for corn prices, stop producing it for fuel. It's a losing bet.

Anonymous said...

4:51 you are right producing a food product for fuel is a losing bet and it is just plain stupid.

Anonymous said...

Addressing several of previous posts, all I have to say is that the basic principles of business and life remain the same. In hard times, if you are over extended (highly leveraged), you will fail and become a statistic. Most people do not want to hear or accept what I have to say but I will throw it out there for the umteenth time. Spend less than you earn, give up the expensive new phone/cable tv/new car - truck. Sacrifice for 4-6 years and put that saved money away so that you can escape the get it now pay later trap. Buy a used car for cash (2,000-3,000) - no car payments and you only need liability insurance. Continue to save the money that you would be paying for car payments/cable/newest phone and then be in a position to buy a house that somebody else can no longer afford for less than half of what they paid. It is not that difficult but it does require a few years of sacrifice. Once you escape the financing trap, you can save money to purchase the things that everyone else finances. To all the negative nancy's - I did it - retired in my mid 40's - own multiple homes and several businesses. Was it difficult, yes for a while, but the people that laughed at me and did the opposite, are still working, have car payments, mortgages and take 1-2 weeks vacation.