Defaults on agricultural bank loans 2.68%, highest since 2012
In a report released on June 29, the data company and a division of S&P Global, said the pandemic contributed to 2.68% of “total farm loans” for banks being in arrears as of March 31. This is the highest level since the first quarter of 2012, according to the report.
In the third quarter, banks held $ 179.52 billion in farm loans, according to the report, which does not list the farm credit system, a major player in farm credit. It classifies John Deere Capital Corp. of Reno, Nevada, as the largest US bank in terms of farm loans in the quarter, with $ 15.6 billion, up 6.1% year-over-year.
According to authors Carolyn Duren and Nathaniel Melican, delinquencies on bank farm loans were higher for both farm home loans and farm production loans for things like equipment and seeds.
Farms that filed for bankruptcy the year before March 30, by state, were led by Wisconsin, at 78. In that full year, no bankruptcies were filed in North Dakota, 37 in the ‘Iowa, 35 in Minnesota, 17 in South Dakota, 12 in Montana, and 41 in Nebraska. It is not clear whether these were Chapter 12 farm bankruptcies or whether the numbers also included Chapter 11 bankruptcies for large agricultural companies.
As part of the report, Bruce Lee, president and CEO of Heartland Financial USA Inc. of Dubuque, Iowa, said animal producers are hit the hardest. Heartland had $ 549.2 million in farm loans in its portfolio as of March 31, representing 6.5% of its loan portfolio.
“Farmers couldn’t bring their animals to market and couldn’t afford to feed them either, which created a problem,” he said. He said the bank was increasing communications with borrowers. The bank suffers few losses “partly because the borrowers have high collateral values on their land”.
David Kohl, professor emeritus of agricultural finance at Virginia Tech, was cited in the report, saying bankruptcies are a “lagging indicator” and bankruptcies caused by the coronavirus pandemic will not emerge for at least a year.
The pandemic effect “calls into question” the concentration of US agricultural production, Kohl said.
“Concentration and size bring efficiency and optimization, but it also undermines the resilience of diversification,” he said.
Banks use government programs, value portfolios, and offer interest and principal deferral to help get through the cycle, Kohl said.
Agriculture, food, and allied industries in 2017 contributed $ 1,053 billion to the U.S. gross domestic product, or 5.4 percent of the total, according to the U.S. Department of Agriculture. According to the USDA’s Agricultural Research Service, “farm production” contributed $ 132.8 billion, or 1 percent of GDP, to this figure.
Andrew Liesch, managing director and senior research analyst at Piper Sandler Cos., Cited in the report, said he would not be surprised to see an increase in “problem loans” later this year. Piper Sandler Cos. is an independent, multinational investment bank and financial services company based in Minneapolis. Financial regulators told banks in March that “modified” agricultural loans for borrowers affected by the pandemic would not require a “distressed debt restructuring” category – even if they were deferred for up to 180 days. By this point, many farmers will have harvested their crops and be able to repay their loans, Liesch said.
Here are some of the Upper Midwest’s “Leading Consolidated Banks” listed in the report:
Great Western Bancorp, Inc., Sioux Falls, SD, had $ 1.87 billion in agricultural loans, including $ 967 million in production loans and $ 913 million in agricultural loans. GWB’s agricultural loans were down 11.3% from the previous year, accounting for 19.4% of its total loans.
US Bancorp of Minneapolis had $ 1.49 billion in agricultural loans, including $ 566 million in production loans and $ 920 million in agricultural real estate loans. USB’s agricultural loans were down 10.7% from the previous year and represent 0.5% of its total loans.
Bremer Financial Corp. of St. Paul, Minn., had $ 1.24 billion in agricultural loans, including $ 566.4 million in production loans and $ 672.3 million in agricultural real estate. Bremer’s agricultural loans increased 2.5% in the previous year and totaled 13.6% of all its loans.
Ida Grove Bancshares from Ida Grove, Iowa, had $ 987 million in farm loans, including $ 419.7 million in operating loans and $ 567.3 million in home loans. Ida Grove increased its agricultural loans by 6.4% over the year, with 76.9% of its loans in agriculture.
Dacotah Banks, Inc., of Aberdeen, SD, had $ 937.9 million in farm loans, including $ 362.7 million for operations and $ 575.2 million for real estate. DBIN increased its agricultural loans by 2.3% the previous year. Agriculture represented 44.1% of its loans.
Stockman Financial Corp, Miles City, Mont.., had $ 783.2 million in farm loans, including $ 302.1 million in operating loans and $ 481.1 million in home loans. The company’s agricultural portfolio increased by 1% over the year and represents 29.7% of its activity.