Fairfield Ledger
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Mt. Pleasant News   Wash Journal
Neighbors Growing Together | Sep 20, 2018

Rising loans hurt farmers

‘We’ve been able to survive because of cheap money’
Apr 25, 2018

American farmers have managed to stay afloat despite years of shrinking crop values, the lowest incomes since the recession and a budding trade war with China.

Now they’re feeling a new squeeze — borrowing money is getting more expensive as interest rates rise. For some, it may be fatal.

“Commodity prices stink, and they’re set to stink for a long time,” said Jason Barnes, who has 400 head of cattle and farms 1,300 acres of corn, wheat and sunflowers about 35 miles north of Pierre, S.D.

“We’ve been able to survive because of cheap money. You raise rates high enough, it will have a huge impact on people’s ability to continue farming.”

The Federal Reserve is tightening credit as the economy shows signs of strength, ending a prolonged period of low interest rates in the wake of the financial crisis.

As a result, banks pushed the fixed rate on U.S. farm loans to a five-year high of 5.6 percent in the fourth quarter, up from 5.3 percent a year earlier, Fed data show. With more increases expected through 2019, farmers may see their thin profit margins evaporate.

For Barnes, a former banker who took over his father’s farm in 2012, the increase means he is spending $3,000 more than last year on his $350,000 operating loan.

That’s money he won’t spend on hiring local workers to handle maintenance or repairs on things such as watering systems, fences and cattle pens, as he normally would.

If rates keep rising, he could be paying an additional $5,000 in interest by 2020.

“It’s going to get difficult as the Fed keeps raising rates,” said Jerry Catlett, president and chief operating officer of Bruning State Bank in Bruning, Neb., about 100 miles southwest of Omaha.

Catlett already is factoring in higher debt burdens this year for farmers when assessing their creditworthiness, which means some will get smaller loans or none at all, he said.

Net farm income will drop in 2018 for the fourth time in five years, to $59.5 billion, down from a record $123.8 billion in 2013 and the lowest since 2006, according to the U.S. Department of Agriculture.

If higher debt costs force farmers to sell land or quit, that could hurt rural communities that rely on those businesses for jobs and tax revenue.

“It’s people who aren’t buying tractors or pickups, or working on their house or going to a restaurant,” said Mike Yackley, who manages the BankWest Inc. branches in Selby and Onida, S.D., separated by 60 miles on Highway 83.

The towns, in the north-central part of the state, have a combined population of 1,300.

To be sure, lenders don’t expect the United States will see a repeat of the widespread bankruptcies that led to the farm crisis in the 1980s.

Back then, the industry was hit by interest rates above 15 percent, surging fuel costs, too much debt, slumping commodity prices and a strong dollar that hurt exports.

Farms tend to be bigger today, and for many older producers, debt is more manageable than three decades ago. While total borrowing will be an estimated $389 billion this year, the ratio of debt to total farm equity remains little changed over the past decade at under 13 percent. It was twice that in the 1980s.

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