Ag lenders review credit conditions for House Ag Subcommittee

A lot rides on the 2018 farm bill’s safety net of commodity price protections and crop insurance for U.S. farmers. Mother Nature wasn’t exactly the most cooperative of business partners in 2019. Trade wars with major U.S. commodity customers haven’t helped farm level prices. And this is on top of a slowing ag economy in its seventh year.

Agricultural lenders took to Capitol Hill to testify to the current credit conditions in farm country before the U.S. House Agricultural Subcommittee on Commodity Exchanges, Energy, and Credit.

Steven Handke, regional president and Chief Administrative Officer of the First Option Bank in Osawatomie, Kansas, testified that while agricultural portfolios remain stable, they are deteriorating.

“Many community bankers are concerned about the negative impact of low commodity prices,” he testified. “Credit is plentiful, competition for loans is intense and interest rates remain near historically low levels. All a benefit to farmers.”

However, Handke pointed out that while the U.S. Department of Agriculture’s November forecasts of net farm income climbed to $92.5 billion, if you adjusted for inflation that increase was just 8.2% from 2018. And in inflation-adjusted terms, net farm income in 2019 would be 32.3% below its peak of $136.6 billion in 2013. 

Even more concerning, Handke testified that $22.4 billion of that net farm income in 2019 was government payments, which is unsustainable.

Shan Hanes, president and CEO of Heartland Tri-State Bank in Elkhart, Kansas, echoed that testimony.

“In a 6 year time span, net farm income decreased an average of 85%,” Hanes testified. “I dare say many of us couldn’t survive if our paychecks were cut 85%.” While interest rates are near record lows, comparing total debt to earnings before interest rates and capital is the highest as it’s been since the 1980s. But, he added, in the 80s, interest rates were at an all-time high, so as interest rates lowered, repayment became easier and cash flow became stronger.

And farm operating costs continue to rise, requiring more lending to continue. Marc Knisely, president and CEO of AgCountry Farm Credit Services, Fargo, North Dakota, testified on behalf of the Farm Credit System. He testified that working capital levels, the difference between current assets and current liabilities, have declined sharply since 2013. 

“Working capital is the cushion against tough times,” he said. “For many producers today, that cushion no longer exists.” Simply put, those farms that have debt, which are most of the farms in the U.S., debt ratios are climbing “perilously high.” 

Knisely testified that the saving grace for many farmers and ranchers is that we have low interest rates, continuing strong land values, and a non-farm economy that provides off-farm jobs that pay bills. Farmers are cutting costs, and extending the life of equipment, cutting family living expenses, and more. And older farmer operators are voluntary exiting the industry.

Handke said that banks have been able to lend using real estate as collateral, but the catastrophic weather conditions across much of the U.S. in 2019 may lead to reduced real estate values at the local level, which in turn leads to difficulties in restructuring debt or injecting working capital into the farm operation.

“According to the FDIC, the number of ag banks considered unprofitable has reached 3.5% as of Sept. 30, up from 2.19% during the same period a year ago,” he testified. “Many producers who have been hit hard by the flooding in the Midwest and weather calamities in other regions have found it difficult or impossible to plant all of their crop acreage or fully breed for cow-calf herds.” Handke related that one North Dakota banker, reported that the majority of the state’s corn crop is still in the field, while wet conditions, poor grain quality and excessive drying costs have many contemplating leaving the crop in the field until spring conditions dry the crop further. That could lead to a sharp reduction in net farm income for 2019 with uncertain abilities to underwrite some 2020 farm operations.

Hanes testified that farm bankers have been concerned for several years over the rapid appreciation in farmland values in some areas of the country. The run up in farmland values wasn’t credit-driven, he testified. The consensus of many bankers is that this increase has slowed, but the ABA continues to watch the farm real estate market closely. 

“In recent years, over four-fifths of the agriculture sector’s asset values were held in real estate,” he testified.

Both Handke and Hanes encouraged the committee and Congress to support H.R. 1872, the Enhancing Credit Opportunities in Rural America Act (ECORA), which would allow banks to provide farm real estate loans at lower interest rates and compete with the Farm Credit System in farm real estate lending.

“When a farm real estate loan is made, the Farm Credit System will pay no tax on the income from that loan,” Hanes testified. “Banks however will pay a 21% federal tax and various state and local taxes across the country. This means a farm real estate loan will cost more for a producer from a bank than the Farm Credit System.”

Knisely testified that the Farm Credit System provides more than just lending to farmers. With outreach efforts aimed at young, beginning, and small farmers, to financing farmer-owned cooperatives, to making nearly $12 billion in loans for families to buy homes in very rural areas and thus stimulate jobs and economic growth, he said that Farm Credit is working to improve quality of life in rural America.

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Farm Credit, Knisely testified, is working with the American Farm Bureau Federation and the National Farmers Union to roll out an online training course that was developed at Michigan State University to focus on mental and emotional health. It will help loan officers having stressful conversations and help employees identify signs of stress in customers and give them techniques to get customers the help they need to manage that stress. A partnership with AgriSafe Network will educate rural health professionals on the mental health risks faced by farmers and ranchers and help them implement basic screenings into their primary care practices. And the Total Farmer Health campaign is aimed to help address limited mental health services in many rural areas by training primary care practitioners to recognize the signs of farmer stress.

To watch the hearing and to read more of the provided testimony, visit

Jennifer M. Latzke can be reached at 620-227-1807 or [email protected].