Farmers stressed, but credit institutions remain strong

It’s no secret that the stresses of the COVID-19 crisis, coming on top of a tariff trade war and years of plunging farm commodity prices, have put unprecedented pressure on farms and farm families, especially in the dairy and cattle sectors. Cattle industry losses alone have been estimated at almost the entire amount of the latest farm aid package, which was not targeted at cattle producers alone.

But during this downturn, farm credit institutions remain strong and able to offer support to stressed-out farmers. That was the message that emerged from a media-only webinar hosted by the Farm Credit Council featuring CEO speakers representing credit institutions across a range of regions, crop mixes and size.

Speakers included Todd van Hoose, president and CEO of the Farm Credit Council; Pat Calhoun, president and CEO of AgSouth Farm Credit; Bill Johnson, president and CEO of Farm Credit Mid-America; and Tracy Sparks, president and CEO of Yosemite Farm Credit.

All four institutions said they were having as many of their employees as possible work remotely and observe safety precautions, but that they were still maintaining full books of business and continuing to provide services to their customers at this crucial time.

Stressed dairies in California

After an overview of the farm credit sector provided by Van Hoose, Sparks gave the first presentation. Yosemite serves 5,000 customers in four counties in California’s fertile central valley, concentrating mostly on Stanislaus County and Merced County. With $32 billion in net assets and 2019 income of $64 million, Yosemite serves clients raising a diverse portfolio of crops, with 30% dairy, 28% almonds, 21% other tree crops, and the rest a mix of livestock and row crops.

Sparks said her institution has noticed a decline in credit quality of dairy loans, with “special mention loans” (those potentially at risk) increasing since 2016, as the number of dairy owners operating at or below break-even increased. Quality dairy loans made up 98.4% of their dairy portfolio in 2016 and 96.7% in 2019.

She also said dairy farmers have been hit by chokepoints in processing capacity, similar to those at meat plants that have affected cattle producers. That processing chokepoint explains why some dairies are dumping milk. She explained that it’s not easy for a dairy processing plant to quickly switch from milk to powdered milk, cheese or other dairy products.

The paradoxical result has been high prices for consumers, but record low prices for producers. Dairy operators in her region need a price of $16 per hundredweight to break even, but prices have been hovering around $11 or $12 per hundredweight. The COVID-10 crisis, which closed many food service outlets for milk and dairy products, has meant an income drop of 30% to 40% for dairy farmers in her region.  Sparks has heard persistent talk of some dairy farmers either switching to almond growing or exiting farming altogether. “More federal assistance will be necessary” for dairy producers, she said. Availability of labor also remains a concern.

Almonds faring better

Things aren’t quite so bad for almond growers, she said, with a record crop in 2019 of 2.5 billion meat pounds and prices remaining consistently profitable over the past four years. Growers are still facing a 20% price decline due to coronavirus disruptions, but the 2020 crop is expected to set another record, and the crop is expected to remain profitable.

Yosemite helped customers submit 70 Paycheck Protection Program loans worth $18 million before the money ran out in the first round as Congress is now working on replenishing the PPP fund.

Outside incomes helping to keep farmers afloat

Next up was Bill Johnson, CEO of Farm Credit Mid-America, serving 85,000 customer in Ohio, Indiana, Kentucky and Tennessee and providing almost $6 billion in rural lending. His institution’s loan portfolio includes $5.92 billion in Rural First loans, $8.92 billion in ag retail loans, and $7.67 billion in food and agribusiness loans.

Johnson noted that commodity prices have declined about 50% since 2012, and have been dropping dramatically since January. Few grain crops are projecting profits. Farms can only go so far in reducing expenses. Johnson noted that Market Facilitation Program payments made up the main source of income for many grain producers in 2019. This has left many farms—even those with their heads above water—with a low level of working capital. Even before COVID-19 hit, his institution was working with farmers to change their operations to adapt to new conditions.

 “Fortunately, we have the capital base to support customers,” he said. Without adequate net earnings, though, replenishing working capital with new term debt may be counter-productive.

Many of Johnson’s customers have second jobs and incomes off the farm that help them stay afloat. The same is true of many customers served by AgSouth Farm Credit, which serves 93 counties in Georgia and South Carolina. In the question period, Johnson noted a low rate of loan delinquency among farmers with outside incomes.

AgSouth Farm Credit’s loan portfolio includes 35.56% serving timber and forest products, and 2.11% serving timber processing, with another 35% spread among row crops and livestock and soybean operations. His firm has helped process $5 million in loan deferrals due to COVID-19 disruptions.

Pat Calhoun, CEO of AgSouth, noted the “cons” of credit quality deterioration due to the virus and declining commodity prices. But he said the “pros” include the strong capital and financial position of his firm, its deep experience with the Farm Service Agency, its knowledgeable staff and its emphasis on borrower rights. AgSouth has a strong program for young, beginning and small farm owners. In the question period, Calhoun emphasized his faith in the farm credit system, saying, “None of us are worried about the farm credit system’s institutional health. Our institutions are financially strong and well-capitalized.” He said the FSA has streamlined some processes and made “positive changes.”

Many of the questions dealt with logistical issues in the meat industry, including COVID-19 outbreaks in packing plants, that have stranded a lot of animals on the farm. Van Hoose said decisions would have to be made soon on whether to euthanize animals.

David Murray can be reached at [email protected].