Hoosier Banker 33 The baseline by which most farmers plan and execute crops has shifted over the past two years. The pandemic, global supply chain challenges and political issues have all heavily impacted agriculture. This has translated into rising input costs, rising commodity prices, input shortages and, most significantly, uncertainty for farmers and the lenders that service the agricultural sector. Despite this increased volatility there is optimism, and it appears that farmers have recovered nicely from the obstacles that have been thrown at them. As of this writing, the U.S. Department of Agriculture is forecasting 2022 net farm income to remain steady from the net farm income we saw in 2021. This is good news for bankers who lend to farmers, as 2021 net farm income was an increase from previous years. In fact, net farm income has consistently increased since the 2017 crop season. This has resulted in a strong farm balance sheet and equity position. The USDA expects the U.S. farm balance sheet to increase its debt-to-asset ratio by 1.5% from 2021 to 2022. This will result in a debt-to-asset ratio for the end of 2022 of 14.11%. This is a 10-year high for this ratio. Normally, an increasing debt-to-asset ratio would be cause for concern, but it is not yet in a range that is too concerning. Additionally, the liquidity position of farmers is increasing. This increased liquidity can be seen in the decreasing delinquency rates. According to call report data from U.S. banks, the delinquency rate for farm real estate loans has been decreasing over the past year. The current delinquency rate is 1.31%, which was last reported for the first quarter of 2022. This is below the historical average of 1.74%, which is the average of US Farm Balance Sheet Remains strong despite uncertainty Brady Brewer, Ph.D. Assistant Professor, Agricultural Economics Purdue University brewer94@purdue.edu every quarter since this measure was first reported in 2001. Even better news is that the ag credit surveys from both the Kansas City Federal Reserve and the Chicago Federal Reserve have reported lower levels of renewals and extensions for agricultural loans. This measure from the ag credit surveys can be seen as a leading indicator for delinquencies, as bankers typically offer some type of extension or renewal if the farmer has sufficient equity. Thus, if this measure were increasing, it would be a negative mark on the agricultural credit sector. This is another good sign that farmers have a solid liquidity position heading into the fall loan renewal season. Another good sign for the farm balance sheet is the demand for farm loans. In the first quarter of 2022, the total of agricultural loans made at commercial banks was steady relative to that time period in 2021, according to the report on condition and income from the Kansas City Federal Reserve. When broken down into real estate and non-real estate loans, however, the amount of non-real estate loans (e.g., operating and equipment loans) actually decreased from the first quarter of 2021 to the first quarter of 2022. Farmers needed fewer loan dollars for their short-term operating needs. Considering the increases in input prices such as fertilizer, it is remarkable that we have not seen substantial increases in non-real estate loan volumes. Circling back to the uncertainty mentioned at the beginning of this article, a major question is what this data will look like over the next year. Farmers were able to absorb input price increases up to this point to get 2022 crops in the ground. Additionally, as pointed out, they did this while using less operating credit than in 2021. AG BANKING (Continued on page 34.)
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