The popular media is having a “hayday” with the uptick in farm bankruptcies; up 24 percent over 12 months ending in September 2019; and Dean Foods Co., the biggest US milk company filing for bankruptcy protection this week. According to a Farm Bureau Federation report, Iowa had a total of 24 Chapter 12 Farm Bankruptcies during that time period and increase of 10 from the previous 12 months.
The third annual Siouxland Ag Lenders seminar last week brought together 71 ag professionals, representing 20 banks, 14 dairy businesses and six academics and USDA specialists from five states. Their responses to a questionnaire painted a scene that shows “light at the end of the tunnel”. Those attendees responding to the evaluation represented over 238,000 milking cows and 639,000 acres producing feed for those cows.
The program focused on commodity markets, milk markets, accounting, tax law changes, new research on sustainability and technology.
For the second year we asked several questions focused on agricultural loans to better understand the state of farm loans in Siouxland. First, we asked if the lenders portfolios had more “at risk” accounts today than it did in 2018; 50 percent indicated more “at risk” loans, down from 90 percent in 2018. While in 2018 no lenders indicated less “at risk” loans, this year 10 percent indicated less. In 2018 just over 9 percent indicated the same number of “at risk” loans, this year 40 percent indicated the same number. While these numbers show there are still fragile operations, producers are making headway on improving their balance sheets.
We followed up asking if they were rejecting or reducing more operating loan requests than they did in 2018: 45 percent responded that they were rejecting or reducing more operating loan requests in 2018, it was down to 30 percent in 2019; In 2018, 55 percent indicated loan actions were the same as in 2017, it was up to 64 percent in 2019. The drop in rejections is also positive, showing that operations have improved their capacity to borrow.
When asked if they were seeing changes in alternative and vendor financing in 2018, 71.4 percent were seeing an increase; 25 percent were seeing no change and 3.5 were seeing a decrease; in 2019 that had changed to 75 seeing an increase, no decreases and 25 percent saw no changes. The slight increase may be producers shopping for the best opportunities.
We then asked the lenders to indicate the changes they were making to respond to the weak farm income. They were given five options, this chart shows the responses:
Bank changes % Indicated adoption in bank practice 2018 2019
- Increased collateral requirements 39.0 35.5
- Reduced dollar amount of loans 12.2 06.5
- Increasing interest rates 34.1 22.6
- Rejecting more loan requests 45.0 22.6
- No change in lending 02.4 09.7
Improvement in each option, indicates that lenders have seen changes in producer balance sheets and are able to loosen restrictions form last year.
A new question for 2019 asked if respondents have seen indications of personal stress in the farm families they serve; 71 percent indicated they had, and 12.9 percent had been prompted to take some action or intervention. The long-term challenges of the past four years has certainly taken a toll on family relationships. As the industry learns to recognize the sighs of stress and what they can do to facilitate the communication, families will heal, both emotionally and financially.