Farm delinquency rates went up and agricultural lending slowed during the height of the coronavirus pandemic lockdown, two economists for the Kansas City Federal Reserve Bank detailed in an analysis Thursday.
Reflecting some of the challenges of the agricultural sector, commercial banks reported 13% fewer non-real estate loans to farmers in the second quarter of 2020 compared to a year ago.
The Federal Reserve economists noted the sharpest decline in loan volume was for livestock feeder loans, which declined more than 40% from a year ago. Most other sectors accounted for about a 10% decrease in operating loans.
The report comes as the U.S. Senate returns next week facing high expectations that senators will come together quickly on a “Phase 4 Coronavirus Relief Legislation,” as the U.S. Chamber of Commerce detailed in a letter to senators.
Outstanding farm debt during the second quarter also declined for the quarter with the slowdown of lending activity. Yet, delinquency rates for both real estate and non-real estate loans ticked upward, though the volume of loans more than 90 days past due still represents the smallest share of total delinquencies, the Fed economists stated.
The economists added, “There have been some signs of further liquidity stress among farm borrowers.”
Loan volumes overall to farmers also slowed despite declining interest rates. The average charged rates for all non-real estate loans neared historic lows in the second quarter of the year.
The Fed report also noted that government payments to farmers and livestock producers “appear likely to limit the severity of financial stress among farm borrowers in the coming months, but uncertainty about longer-term prospects is likely to remain elevated.”
Reports of fewer farmer loans will likely add to the case that agriculture needs more support in any final aid package passed by Congress this summer. The House passed a $3 trillion aid bill in May, the HEROES Act. The bill provides another $16.5 billion for USDA to provide direct aid to producers.
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The HEROES Act also includes language requiring compensation for livestock producers faced with euthanizing animals, specific funds for specialty crops and farmers market producers, and aid for the ethanol industry with a 45-cent-per-gallon reimbursement payment for renewable fuel producers.
In the Senate, at least some farm-state lawmakers — including Sen. John Hoeven, R-N.D., the chairman of the Senate Agriculture Appropriations Subcommittee — have said they want to see about increasing the borrowing authority of the Commodity Credit Corp.
The CCC authority is capped at $30 billion annually, but that limit has been in place since 1987. The American Farm Bureau Federation and other farm groups have called on Congress to raise the CCC loan authority to as much as $68 billion, the level where the CCC loan authority would be today if it had kept pace with the rate of inflation.
On Thursday, the conservative Heritage Foundation fired a shot across the bow at the idea of raising the dollar value of the CCC. Heritage, a strong critic of farm programs, argues Congress would be giving away too much of its power to USDA over spending if lawmakers raise the CCC spending authority. Heritage stated it would “create a massive USDA slush fund.”
Heritage stated, “Congress would be failing to exercise its constitutional obligations and abdicating accountability for how tens of billions of dollars are spent.”
Andrew Walmsley, director of congressional relations for the American Farm Bureau Federation, said in response to the Heritage report that the CCC allows USDA to be “nimble” when responding to disasters that affect farmers. Walmsley said farmers do not have a problem with oversight, but they want to see the CCC limit raised and tied to inflation.
“It’s worth noting that 84% of U.S. adults support government aid to farmers hit hard by the pandemic’s shockwaves,” Walmsley stated to DTN in an email. “The CCC is a stabilizing force for men and women who face unpredictable risks to put dinner on our tables.”
National Farmers Union on Thursday wrote Senate leaders pointing to the Coronavirus Food Assistance Program (CFAP) created by USDA from funds provided in the CARES Act last spring. While $10 billion remains in CFAP to be paid out, NFU noted that, without further assistance, net farm income is expected to drop by 12% this year.
Beyond aid payments this year, more structural changes are needed in the farm economy, such as offering incentives to farmers and rancher not to overproduce.
“One way to do this is with supply management mechanisms that balance commodity supplies with demand and stabilize prices,” NFU stated.
NFU also detailed more aid to help with rural health care, including a boost in payments to rural health provides. The farmers group also wants to see better protection for farm workers.
The group also cited support for bills that would allow haying and grazing on Conservation Reserve Program lands and a bill that would support more state-inspected packing plants to make upgrades that would allow them to be certified for federal inspections.
“Such inspections will allow these plants to sell their products across state lines and will promote the development of regional markets,” NFU stated.
The National Pork Producers Council also has scheduled a phone call for Monday to stress the situation hog farmers still face economically. NPPC wants to see the “Responding to Epidemic Losses and Investing the Economic Future (RELIEF) for Producers Act” as part of an aid package.
The RELIEF Act expands on the aid offered to livestock producers in the House HEROES bill.
Agricultural groups aren’t the only ones making their case for aid. The U.S. Chamber of Commerce on Thursday also detailed some needs. The business lobby wants Congress to include liability protection against lawsuits related to COVID-19, as well as more targeted financial aid to small- and medium-sized businesses and tax relief for employers hurt by the pandemic. The Chamber also would like to see Congress replenish some Small Business Administration loan programs.
The Chamber also called for aid for both childcare and K-12 schools, more funding for unemployment and job-training assistance, and funding for state and local governments.
Kansas City Federal Reserve Update on Ag Lending: here.
American Farm Bureau Calls on Boost in CCC Funds: here.
Heritage report on CCC Funds: here.
Chamber of Commerce letter to Congressional leaders: here.
National Farmers Union letter to Senate leaders: here.
Chris Clayton can be reached at Chris.Clayton@dtn.om
Follow him on Twitter @ChrisClaytonDTN