Takeaways from Ag Lending Survey
from the executive office…..
By: Curt Everson | President | South Dakota Bankers Association
It occurred to me recently how appropriate it is to observe and celebrate both Veterans’ Day and Thanksgiving Day each November. Since we provided by God’s grace, perhaps we should consider thanking veterans for their service and sacrifice by making a sacrifice of our own.
A good friend of mine told me that people of his Mormon faith fast for two meals in a row each month as a reminder that many people in our world live in hunger. Money that would otherwise have been spent on those two meals is contributed to a fund that the church uses to provide food for those who would otherwise go without. Irrespective of religious belief or affiliation, maybe each of us should periodically consider giving up something in honor of military
veterans that we hold dear and making a sacrificial gift to a worthy cause. After all, ‘tis the season for both thanks and giving.
Beginning on Nov. 10, more than 500 bankers gathered in Dallas, Texas, to participate in the ABA Agricultural Credit Conference. During one of the conference general sessions, ABA Chief Economist Jim Chessen and Farmer Mac’s Head of Strategy, Research and Analytics Jackson Takach presented results of ABA and Farmer Mac’s most recent Agricultural Lender Survey. A sampling of key takeaways based on responses submitted by more than 450 lenders nationwide include the following.
Profitability Expectations: The agriculture economy and farm income remained stressed in 2019 with limited signs of improvement in 2020. The majority of agricultural lenders surveyed noted compression in farm profitability this year (82.5%), and there was consensus in profitability declines across all reporting regions.
Top Concerns for Producers: Liquidity, income and leverage were top lender concerns for producers, but trade, tariffs and weather edged up on the list.
Top Concerns for Lenders: Credit quality, competition for loans and weaker loan demand were the top concerns. Lender sentiment remained cautious between August 2018 and August 2019, mirroring the similar percentage of respondents reporting farm profitability declines, increases in farm leverage and
increases in default rates.
Credit Quality: Survey respondents generally expect higher ag loan delinquency rates heading into 2020 for both production (51.6%) and real estate (39.5%). However, the majority do not expect higher loan charge-off rates in the coming year (65.8% and 74.7%, respectively).
Loan Demand: While more than half of lenders reported that demand for agricultural production loans was flat over the last 12 months, a significant share (45.3%) of lenders with assets between $50 million and $250 million reported increased demand. A similar sentiment was reported for loan demand over the next 12 months.
Land Value and Cash Rent Expectations: Nearly half of lenders expect a decline in land values in 2020 (49.6%), supporting the assertion that there is some above-market valued land in farmers’ balance sheets. Lenders report that an average of 37.8% of land in their markets are above market value, yet the vast majority expect only small changes to land values in 2019 and 2020. Lenders also expect compression in cash rents, but fewer lenders reported above-market value rents compared to 2018.
Approval Rate: In spite of the credit quality concerns, lenders still remain positive about approvals. Lenders reported a new average agricultural loan application approval rate of 75.1% in the 12 months leading up to August 2019, and expect the approval rate for renewal requests will be close to 90% in the following 12 months.
Farm Retirements: The continued stress on profitability is resulting in rising trends in farm exits. Nearly half of lenders reported an increase in farm retirements in 2019 (47.7%) and nearly two-thirds expect the pace to pick up over the next 12 months.
This survey was completed in August, prior to row crop harvest throughout the country. A difficult, expensive harvest season will drag on into December for some producers, creating more challenges for lenders and borrowers alike going into 2020.
Curt Everson is president of the South Dakota Bankers Association in Pierre. Everson can be reached at 605.224.1653 or ceverson@sdba.com.
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