Farm Credit Strong Despite Ag Headwinds04/03/2019
From a federal perspective, the Farm Credit Administration is as prepared as it can be to help farmers weather the current challenging economic times from continually declining farm income and stagnant commodity prices.
But individual farm situations are dire on the ground in Midwestern states such as Nebraska and Iowa, where flooding has devastated agriculture, and in places heavy in dairy production such as Wisconsin, Farm Credit leaders told the House Agriculture Appropriations subcommittee on Tuesday.
“It’s important to remember that, on individual producers, the impact can be very different,” said Rod Hebrink, president and CEO of Wisconsin-based Compeer Financial, which serves farms in Illinois, Wisconsin and Minnesota. “When individual farm families suffer, it is the death of dreams for those farms.”
Witnesses told the committee that now is the time for lawmakers to pass additional disaster funding. That comes after the U.S. Senate on Monday failed in a procedural vote to end debate on an emergency disaster bill. The $13.45 billion bill included aid for the Midwestern states that have been hit by flooding and $600 million for Puerto Rico’s food stamp program, but Democrats said more aid is needed in Puerto Rico.
Floods in Nebraska and Iowa caused damage to agriculture in excess of $1 billion and is likely to grow.
Mark Jensen, president and CEO of Farm Credit Services of America/Frontier Farm Credit based in Omaha, said Nebraska farmers face other challenges on top of disaster.
“Farmers and ranchers in our territory continue to grapple with a very challenging environment,” Jensen said. “Commodity prices have fallen and remained low for the past several years, while the costs associated with raising crops has remained high. Many row-crop farmers have found profits elusive and face multiple years of losses, with similar circumstances projected for the 2019 crop year.”
There’s little chance of a quick commodity price rebound, barring some unexpected changes in commodity supply or demand, Jensen added.
“We are working hard to support our customers through this cycle, and despite the current situation, we continue to have a positive long-term outlook for U.S. agriculture,” he said.
Even as Nebraska producers try to pick up the pieces, there is plenty of concern about additional flooding from expected snowmelt and spring storms, Jensen said.
“It likely will take months to fully assess the damage, but the need for assistance is immediate,” he said.
Producers affected by the floods will be qualified for restoration assistance, Jensen said. That includes interest-rate discounts, interest-only payment programs and installment loans for refinancing working capital losses from operating loans created by the weather-related disaster.
When it comes to the down farm economy, he said, most farmers and livestock producers have already done what they can to adjust their operations, including lowering production costs, deferring payments and restructuring debt.
“Producers who have reduced production costs and operate in areas that had strong yields this past year have fared better and either made some financial progress or at least came close to a breakeven profit,” Jensen said.
“For others who weren’t as fortunate or are involved in certain livestock production, it was another year of losses and financial challenges,” he said. “Smaller farming operations are particularly challenged due to tight margins combined with increasing living expenses and the cost of today’s farming equipment.”
Hebrink told the committee dairy farms have been hit particularly hard by a slumping farm economy.
He told the story of a Wisconsin dairy farm that has worked with Compeer Financial for years. The family operates 50 acres of cropland and a 350-head dairy.
“Unfortunately, multi-year losses have hit them hard,” he said. “Their liquidity is severely challenged and payables at the local feed co-op are rapidly building. But this family isn’t facing these challenges alone. Our philosophy is to work with producers in all the industries we serve, under all economic conditions.”
Rural communities in general, Hebrink said, are facing economic challenges.
“The ongoing decline in rural population is problematic, but strong rural communities help agriculture thrive,” Hebrink said. “We need a new approach for sustaining rural communities because of this integral interdependency. There is a shortage of capital in rural communities to meet all of the infrastructure needs.”
Dallas Tonsager, chairman and CEO of the Farm Credit Administration, said agriculture faces stiff headwinds from lower commodity prices, falling net-farm incomes and trade concerns.
There are a number of factors supporting the overall good condition of Farm Credit Services. That includes stable earnings, a strong capital base and reliable access to debt capital markets, he said.
As of Sept. 30, 2018, FCS gross loans totaled $263.6 billion, an increase of $12.5 billion or 5% from Sept. 30, 2017, Tonsager said. Real estate mortgage lending was up $5.7 billion or 4.8% as demand for cropland continued in 2018. Overall, real estate mortgage loans represent almost 47% of the system’s loan portfolio.
Production and intermediate-term lending increased by $1.4 billion or 2.7% from the year before, Tonsager said, and agribusiness lending for processing and marketing increased by $2.7 billion or 12.8%.
“The system also continues to benefit from a strong capital base, which enhances its risk-bearing capacity at a time when system borrowers in certain agricultural sectors face increasing financial stress,” he said.
Todd Neeley can be reached at firstname.lastname@example.org
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Source: Todd Neeley, DTN