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Financial Anxiety Rising? Talk to Your Ag Lender Sooner than Later


Falling commodity prices and sliding farmland values over the past three years are pushing some farmers into troubling financial territory. It’s tough to think about the future when you’re worried about making mortgage payments or paying off equipment, but Kansas State University economist Duane Hund is urging farmers to be proactive in taking stock of their situation and talking with their lenders.

“I’ve been hearing from people I haven’t talked to in 10 years or more,” Hund said of the concern people are expressing about their financial situation. As the director of the Farm Analyst program at K-State, he and a team of farm economists work confidentially with farmers across the state to determine the best path to profitability.

Some people are overextended credit-wise, he said, and having trouble getting renewals on their lines of credit. That’s partly due to the unstable land market in some parts of the state, which is sparking caution among lenders, especially where a farmer’s land is used as collateral.

The declining value of crop insurance, which famers use as collateral for their operating loans, is another concern. As average commodity prices go down, Hund said, so does the level of coverage a farmer can purchase.

The average price of U.S. wheat fell to $4.89 per bushel in the 2015/2016 marketing year from $7.77 three years earlier, according to the U.S. Department of Agriculture. The average price of corn was $3.61 a bushel in 2015-2016, about half the 2012-2013 price of $6.89.

Hund, who has worked with more than 1,000 farmers over the past 32 years, said some people are asking if a recent increase in interest rates is a harbinger of what happened in the 1980s, when interest rates soared and the farm economy plummeted. He referred to the Dec. 13, 2017, announcement by the Federal Reserve that it was raising the benchmark federal funds rate by a quarter of a point to a range of 1.25 percent to 1.5 percent, the third increase this year. In its announcement, the agency noted an overall strengthening labor market and economic activity, even amid the year’s hurricane-related fluctuations.

“This may not be a negative, but could be positive,” Hund said of the interest-rate increase. “I’m somewhat hopeful that this isn’t a harbinger of a problem but an increase in demand.”

He said the current economic situation is especially difficult for young farmers just starting out: “Some don’t have a lot of equity, and machinery values are down, especially in comparison with what they owe on it. In some cases the value of machinery is below what the debt is that’s against it.”

Lenders are being cautious about how they value machinery, he said, but added that the criteria banks use can be subjective. If they see equipment that doesn’t sell for much at a farm sale in their county, it can influence the lender’s thoughts, but that same type of equipment may sell for much more next week in another part of the state.

“Some banks are optimistic and willing to take on a new loan or two. Others are pessimistic and concerned that conditions can get worse before they get better and are being very cautious about extending credit or writing new loans,” he said. “One bad loan can influence a lender’s thoughts about all of their farm loans.

Hund said he’s not aware of any foreclosures currently, but some farmers who were already nearing retirement are exiting now. Others are filing for Chapter 12 bankruptcy, which allows farmers to restructure their finances and avoid liquidation or foreclosure.

He suggests that farmers work on a financial statement and talk with their lender. In some cases, it’s not declining production but the declining value of production that’s the problem.

“It’s nothing you’ve done. If you’re a good producer and doing everything right but negative only because of a decline in commodity prices, banks are more likely to hang with you and do what they can to help you stay in business,” Hund said.

Seek help if you need help assessing where you are financially, he added. If the outlook isn’t what you were hoping for, this is the time to make adjustments. Almost every farm has adjustments they can make to better their situation.

Hund said he’s also received calls from spouses of farmers who were seeing anger and depression and concerned about their husbands’ emotional health. Farmers are feeling defeated, in some cases.

“I’m not saying anything is at the level that we saw in the 1980s, but we’re seeing levels of depression and anxiety we haven’t seen in a long time,” he said.   

Unlike large corporations where committees are formed to address the company’s challenges, farmers are often the one and only decision maker in their business, which can be a lonely place in times of financial stress. They might say ‘Am I failing?’ … ‘I’m at a place I’m not used to.’ … ‘I don’t know what to do.’

“Often when we sit down with a farmer and his family, and they are able to verify that their production practices are not the problem, there’s a sense of relief and renewed optimism. That’s important in charting a path forward. Nothing’s worse for a producer than the feeling that he can’t take care of his family,” Hund said.

Source: Mary Lou Peter, Kansas State University

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