CHICAGO, (Reuters) – Midwest bankers reported that the percentage of farm loans their customers are having problems repaying hit a 20-year high in the second quarter this year, according to a survey released on Thursday by the Federal Reserve Bank of Chicago.
Farm incomes also dropped for the period, as record floods devastated a wide swath of the Farm Belt and the trade war between the United States and China entered a second year.
“The portion of the District’s agricultural loan portfolio reported as having ‘major’ or ‘severe’ repayment problems (6.2 percent) had not been higher in the second quarter of a year since 1999,” the report said.
That drop in farm incomes also weighed on farmland values, which were down 2 percent for the quarter after being adjusted for inflation, according to the survey of 157 bankers across the 7th Federal Reserve District. The district encompasses Iowa, parts of northern Illinois and Indiana, southern Wisconsin and the lower peninsula of Michigan.
The state with the biggest price dip in the second quarter, Iowa, was down as much as 3 percent in some areas.
The district-wide dip was the first year-over-year decline since the third quarter of 2017, according to the report. But bankers did say they expect farmland values will stabilize, at least in the short term.
Bankers reported that while farmer demand for operational and other non-real estate farm loans was higher in the quarter than a year earlier, “the availability of funds for lending by agricultural banks was lower.”
The reason, according to the Fed’s report, is that banks had fewer funds available to lend in the second quarter of 2019 than a year ago.
Bankers also said nearly 70% of their farm customers were either significantly or modestly affected by the flooding and other adverse weather earlier this year – particularly in Illinois, Indiana and Michigan.
The floods added more pain for farmers who have also been hurt by low crop prices and the trade war between Washington and Beijing, which has slashed shipments of U.S. agricultural products to China.
Due to the wet planting conditions this spring, bankers are expecting poor corn and soybean yields from their farmer customers this fall. The trade war is also expected to keep prices low, bankers said.
“It seems unlikely that these prices will rise enough to compensate for lost output, so the profitability of many corn and soybean farms will almost surely fall from their 2018 levels – possibly by a lot for some,” the report said.