JANUARY / FEBRUARY 2021 Agriculture Economic Research Service (ERS), which showed lower levels of capital purchases, such as equipment and land. It should be noted that agricultural banks are well positioned for an increase in loan demand, as agricultural lenders are reporting a higher amount of available funds to lend than in previous years. Nonperforming loans. Farmers’ rate of loan repayment also improved in 2020, 6IJIVIRGIW Oppedahl, D. (2020) “Farmland Values and Credit Conditions” AgLetter No. 1990, Federal Reserve Bank of 'LMGEKS GLMGEKSJIH SVK TYFPMGEXMSRW EKPIXXIV november-2020 Federal Reserve Bank of Kansas City (2020) “Ag Finance Updates” Second Quarter Federal Reserve (MWXVMGX %K 'VIHMX 7YVZI]W OERWEWGMX]JIH SVK VIWIEVGL MRHMGEXSVWHEXE EKƤRERGIHEXEFSSO Η&Žƌ ĂŶ ObjecƟve Assessment ŽĨ zŽƵƌ Challenges ĂŶĚ Professional ExecuƟon ŽĨ zŽƵƌ OpportuniƟesΗ Michael A. Renninger ;ϯϭϳͿ ϲϵϱͲϳϵϯϵ ŵƌĞŶŶŝŶŐĞƌΛƌĞŶŶŝŶŐĞƌůůĐ͘ ĐŽŵ ǁǁǁ͘ ƌĞŶŶŝŶŐĞƌůůĐ͘ ĐŽŵ continuing a trend that began in 2013. The index is similarly constructed based on lenders reported repayment rates relative to the same quarter of the previous year. Respondents report whether loan repayment is “higher,” “lower” or the “same.” These responses are summarized by a loan repayment index, calculated as a share of lenders reporting higher minus those reporting lower, plus 100. Thus if the loan repayment index is less than 100, lenders are reporting lower loan repayment rates. Given that the loan repayment rate indexes for both Chicago and St. Louis Fed surveys is below 100, the indexes suggest that farmers were able to pay off a greater portion of their debt. While the index remains below 100 in Chicago, the repayment index is at the highest level since 2012. This suggests that farmers were able to pay off a larger percentage of their debt than in previous years. A key component of loan repayment is net farm income. According to the USDA ERS, as much as 40% of a farmer’s 2020 income will come from direct government payments. This represented a 64% increase in the proportion of a farmer’s income that comes from government sources from 2019. The degree to which farmers can expect (or require) similar payments in 2021 is uncertain. The uncertainty is a result of many factors, most notably the lingering impacts of the COVID-19 pandemic across the agricultural sector. There is a possibility that a decrease in revenue is not matched with an ad hoc program payment, but in a time of lower working capital, it could have an impact on farmers’ ability to repay their debts. Overall the agricultural credit market is riding several positive trends into 2021. Farmers are likely optimistic that interest rates will remain at or near all-time lows, which supports the acquisition of new capital assets. If farm loan demand increases, banks appear to have a sufficient stockpile of funds available to lend. Lenders will also be encouraged by the farmers’ loan repayment rates. While there is a high degree of uncertainty in commodity markets due to a number of factors, including the COVID-19 pandemic and continued trade disruptions, the credit markets look to be well positioned in 2021. HB
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