Masked Financial Stress

The value of nonirrigated cropland maintained its steady trajectory in the first half of this year despite the myriad question marks surrounding farm incomes. While some states saw declines, they averaged 2%, according to a summary from the Federal Reserve Bank of Kansas City. Among states with rising values, the average increase was 4%.

Land values' steadiness can't paper over weakening credit conditions. Federal Reserve economist Nathan Kauffman says delinquency rates on farm loans have increased steadily during the past year. The smallest percentage of delinquencies is in the 90-days-past-due category, although that category is increasing at a faster rate.

"There is no question, even in places where there are high land values, there is financial stress," Colfax, Illinois, farmer Reid Thompson says. "And, government payments have kept that stress under control."

Thompson says the first coronavirus relief program threw a lifeline to farmers who had unsold grain in inventory, essentially boosting their cash prices to or near break-even levels. As of this writing, Congress is crafting a $1-trillion relief bill and debating increasing the Commodity Credit Corp.'s borrowing authority to $68 billion, a move that would give USDA more elbow room in crafting future aid programs.

"If, potentially, another government payment comes out, it's going to artificially hold up land values. It's going to hold up rents. It's going to keep people from making that transition out of farming that they probably would have made anyway," Thompson says.

Ryan Jenkins, who farms in the Florida Panhandle, says he knows for a fact there are farmers who were able to stay in business because of Market Facilitation Program and CARES Act payments. He says those programs have been critical lifelines.

"Ag in America, in general, has got to have a good year soon," he says. "I can assure you, there's not a farmer out here that I know of that wants to have to get payments from anything other than the crops that they grow."

Years when good prices meet good production are rare. With harvest around the corner, farmers are getting a better idea of what this year's yields will be. But, large questions around price remain unanswered. Will China live up to its commitments under the Phase 1 trade deal, or will that too be swept up in new tensions?

"Government payments in the agricultural sector appear likely to limit the severity of financial stress among farm borrowers in the coming months, but uncertainty about longer-term prospects is likely to remain elevated," Kauffman says.

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