Page 64 - May-June 2018 GSE Report Flip Book

FARM CREDIT SYSTEM / FARMER MAC MAJAYN-UAJRUYNE20210818
suggests that the FCS needs to begin aggregating the total amount borrowed by a particular borrower when reporting on its YBS lending. (Farm Credit Watch, Bert Ely, May 2018)
Farm Credit System is prepared for a weaker farm economy
“Some deterioration in credit quality” for borrowers in the agricultural sector is evident in a new set of financial indicators of the Farm Credit System posted by Farm Credit Administration (FCA), according to FCA’s chief economist Steve Gabriel. While the farm sector “is going through kind of a rough spot right now,” the decline in creditworthiness is small and gradual over the past year, according to Gabriel. “First of all, the credit quality issues were at very low levels coming into this period.” Indicators of stress “are starting to increase but very gradually.”
On March 31, the ratio of bad debt (nonperforming loans) to total loans by the four FCS banks
and 69 lending associations increased four basis points from 0.81% for the first quarter of 2017 to 0.85% at the end of March 2018. Over the same period, the System’s gross loan volume increased from $250.2 billion to $261.4 billion.
The System’s relatively healthy financial picture is attributed to “lots of restraint, not only by Farm Credit but other lenders as well,” according to Gabriel. “They learned their lesson back in the 1980s. There is nothing remotely resembling what we experienced in the 80s.”
The Farm Credit System reported “strong earnings, higher capital levels and favorable portfolio credit quality for the first quarter in 2018,” according to the Farm Credit Administration. “Overall, it is financially strong and remains safe and sound. ...Producers across the farm economy will face stress on cash flows from rising interest rates and higher fuel costs. Higher interest rates and declining cash rents will put downward pressure on farmland values. Uncertainties regarding agricultural trade policy and the farm bill will have a direct bearing on the farm economy.”
“Looking at forecasts, we don’t see any big bumps coming,” said Gabriel. “But that assumes normal conditions and we know that’s not going to happen. There are lots of unknowns. We could see back-to-back bad weather years and could have a spike in prices. A big change in ethanol policy could be a big source of demand. China is said to be ramping up ethanol; if that were to take off,
it could be big source of demand. [However,] normal yields, fairly subdued commodity prices
for grains and soybeans and interest rates rising – is going to put pressure on land values and cash flows. There likely will be pressure on producers to tighten their belts.” (Agri-pulse.com, Jim Webster, 06/20/18)
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