Farmers continued to feel the pinch of economic stress in the first quarter, resulting in further deterioration of agricultural credit conditions in the nation's heartland, according to the Federal Reserve Bank of Kansas City's Agricultural Credit Survey.
Recent flooding and severe weather in some farm belt states brought additional challenges for borrowers even as the damage is still being assessed, the report added. The floods hit the Midwest as producers were already facing tough times due to the U.S.-China trade war and low crop prices for key commodities such as corn, wheat, and soybeans.
"While some areas were heavily affected by spring flooding and blizzards, it may be months before the full impact to farm income is realized as immediate damage and implications for the 2019 operating cycle were being evaluated," the KC Fed report said.
According to the survey, the majority of the agricultural bankers in its district continued to report decreases in farm income during the first quarter. It said a similar decline was expected in coming months.
One bright spot however was a slight improvement in livestock prices toward the end of the period. A jump in hog prices in the final weeks of the quarter and into April boosted revenues for some livestock operators.
Struggling farmers are increasingly having trouble paying off their loans. "With low income weighing on farm finances, the pace of decline in farm loan repayment rates increased slightly," said the report from the KC Fed, whose Tenth District covers Kansas, Nebraska, Colorado, Oklahoma, Wyoming, and portions of Missouri and New Mexico.
Tractors on hold
Hardest hit were Missouri and Nebraska, states with heavy concentrations in corn and soybean production, as the trade war has taken a toll.
As income continues to drop, farmers are holding off on equipment purchases in order to put food on the table and pay bills. The report added that the trend was expected to continue into the second quarter, and given that tractors and machinery are typically some of the most significant farm capital expenditures, that could be more bad news for manufacturers such as Deere.
The report also appears to show many farmers sought to take on new debt to meet short-term liquidity needs, whether for seed, livestock feed or other supplies. Farmers also may need to get advance funds in some cases since many growers are holding onto large stocks of stored soybeans and other crops, hoping for higher prices in coming months. Some growers have refused to sell their inventories, coming at a time when soybean prices are near 10-year lows.
The KC Fed said it is seeing increased carry-over debt and loan restructuring, and that lenders have denied a modest amount of new loan requests because of cash flow shortages.
The report said lower repayment rates in Missouri and Nebraska were the largest contributors to overall weakness in farm loan repayment in the latest quarter. Even so, it noted weather-related factors might have contributed to the slower repayment rates and increased loan demand.
"With continued deterioration in agricultural credit conditions, bankers also further tightened credit standards," the report said.
Trade war trouble
The report made no mention of impacts from the continued U.S.-China trade war, which has led to retaliatory tariffs from Beijing and reduced exports for key American commodities, including soybeans.
Total U.S. agricultural product sales to China fell nearly 45% in value in the first quarter of 2019 to $2.1 billion compared with $3.7 billion a year ago, according to export data from WISERTrade.
Separately, a new report released Thursday by the Nebraska Farm Bureau highlighted what it described as "the strong connection between the threat of U.S. imposed tariffs on trade partners and the loss of hundreds of millions of dollars in Nebraska agriculture exports in 2017."
The farm bureau report comes on the eve of new tariffs President Donald Trump has threatened against China. Trump threatened the new tariffs after charging China "broke the deal." Trump administration officials on Thursday are meeting with a delegation from China to discuss trade but it's unclear if that will halt the president's plan to slap new 25% duties on Chinese products.
Most of the $200 million decline in Nebraska's agriculture exports in 2017 compared with the previous year was soybeans and reduced corn exports, according to the report by Jay Rempe, Nebraska Farm Bureau's senior economist.
"It's no coincidence those declines coincide with U.S. tariff threats made against some of our largest trading partners like China, Mexico, and Canada," the Rempe wrote. "The tariff threats clearly impacted those markets for Nebraska agriculture commodities."
Regardless, the Nebraska economist said livestock exports were stronger, helped by beef and pork sales abroad. "Fortunately, Japan, which is far and away the largest buyer of Nebraska beef, and the largest purchaser of Nebraska pork, was never targeted for tariffs."