U.S. farmers are defaulting and missing payments at alarming rates, forcing regional banks to restructure and refinance existing loans, according to Bloomberg. Regional banks, although still considered “healthy” for the most part, are requiring farmers to post increased collateral to “boost their defenses” against additional looming losses and default risks, further depressing US farm production while putting even more loans in danger of default.
According to a report by First Midwest Bank, past-due agricultural loans have soared 287% in 2018 vs the prior year. Additionally, cases handled by the Iowa Mediation Service involving farmers unable to make payments. jumped 20%. In six Midwest states, farmer bankruptcies rose 30% to 103 in 2018. This has caused banks like Farmers National Bank in Prophetstown, Illinois to restructure more loans in order to keep growers solvent while at the same time limiting their own risk.
Don Vogel, the bank’s president and chief executive officer said: “when you’re a rural community bank, if you’re not involved in agriculture, you probably don’t have a future.” Farmer loans make up 79% of his bank’s portfolio and include “probably three generations” of farmers. He continued: “It is a long rough patch and it’s probably going to last longer. There’s not one little thing that you can neglect during these times.”
According to a survey by the Federal Reserve Bank of Kansas City, conditions that prompted lenders to ask for more collateral were up 2.5% in Q4 2018. Meanwhile, the average interest rate on farm operating loans moved up to 6.07%, the highest level since Q2 2010. https://www.zerohedge.com/news/2019-05-06/midwest-banks-hit-hard-surge-us-farmer-bankrupcties