A fall survey of ag lenders shows concern about farm income and debt levels, but most bankers expect credit will be available to farmers next year.
"If you look at the expectations for ag lenders, even though they said they only expected about 51 percent of their customers to be profitable this year, they expect to approve 90 percent of all requests for funding in the next year," said Jackson Takach, chief economist at the Federal Agricultural Mortgage Corporation, or Farmer Mac.
The survey of nearly 500 ag lenders was done in August by Farmer Mac and the American Bankers Association.
Nearly eight in 10 lenders expressed concern about reduced farm income because of low prices.
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Bankers were most concerned about income and debt and credit quality, the farmers' ability to make debt payments.
But trade disputes, weather and the effect of the COVID-19 pandemic on the broader economy are also key concerns. The survey found 87 percent of lenders noted that farmers depended heavily on direct government payments in 2020. Payments were made to offset economic damage from trade disputes, and to make up for the economic impact of the coronavirus.
About one in five farm borrowers asked to restructure loans in 2020 because of economic instability caused by the pandemic.
Lenders will be closely watching farm income and debt going into 2021.
"So I think, absolute level of debt is important. But more important is how much interest expense is there? What's the repayment? What's the annual debt service? And how does that compare to income? And those are the things that the ag lenders are watching very, very closely," said Takach, who thinks the outlook might be more positive because crop prices have rebounded since the survey was taken in August.
"That might change some minds on the expectations for 2021, coupled with a persistently low interest rate environment — those two things might change people's expectations, if we were to re-survey them in early 2021," he said.
Lenders will also be paying attention to what happens with trade, and who takes over trade negotiations in the Biden administration.
"China was our No. 1 trading partner just a few years ago, and so getting that relationship back; they're currently buying a lot of soybeans, a lot of soybeans and corn are going to importers in China. And we need to continue to heal that relationship, mend those fences and make sure we have access to that market," said Takach.
If trade and crop prices improve, farmers can be profitable next year without government payments, Takach said. But if prices sag in the new year, more government payments will likely be needed to avoid increased loan delinquency or default.