Ag loan sector remains strong

By Joshua Palmer, Times-News writer
Friday, October 3, 2008 1:42 PM CDT

Twin Falls, Idaho - The economic turmoil on Wall Street has not reached the country roads of south-central Idaho, where a rural economic boom has meant farmers are not having much trouble getting loans to plant crops, buy land and replace equipment.

“The fundamentals of agriculture right now, in terms of income and opportunities, is good. There are profits to be made, so I think that is underpinning the willingness to lend to that sector,” said Jason Henderson, a branch executive with the Federal Reserve Bank of Kansas City.

The 10th Federal Reserve District - which encompasses Idaho, Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and parts of New Mexico and Missouri - surveys banks each quarter for its agricultural credit conditions report.

Henderson, the Omaha branch executive who writes that quarterly snapshot, said although the official third quarter report will not be available until later this year, they have found anecdotally in talking to bankers that Wall Street’s financial troubles have not affected rural banks’ funding sources or changed their farm lending practices much.

“Their funding comes more from depositors, and that hasn’t been impacted, and so they have funds available,” Henderson said.

Although agricultural credit conditions have tightened somewhat as lenders ask more questions of farm borrowers and increase the amount of needed collateral, those are modest things, and the Federal Reserve Bank has not seen any sharp changes, he said.

“We’re unchanged at this point,” said Mike Hamilton, president of Farmers National Bank, based in Buhl. “Even if it does come to the point where we feel what’s going on in the national economy, we have a lot of equity to deal with it.”

Farm interest rates have been coming down over the last year and farm delinquencies are at historic lows. But agricultural loan demand in the 10th Federal Reserve District has risen sharply as farmers borrow more operating funds to cover the rising input costs.

Hamilton said Farmers National Bank is not projecting an increase in delinquent loans for this year.

So many farmers have been able to obtain loans through their hometown banks that the agricultural loan volumes of government lenders like the Department of Agriculture’s Farm Service Agency have actually gone down.

The Farm Service Agency - which offers both direct loans and government-guaranteed bank loans - is widely known as the lender of last resort for producers who cannot obtain commercial loans elsewhere.

While the agency’s loan numbers are almost identical to a year ago, the dollar volume of farm loans for this fiscal year is expected to be down about $10 million in the state, said Arlyn Stiebe, the agency’s farm loan chief in Kansas. The agency expects to finish the fiscal year with around $91 million in farm loans, down from $101 million a year ago.

“The farm economy is the one bright spot,” said Mike Woolverton, an extension grain market analyst at Kansas State University. “Farm incomes are strong this year, and farmers have cleaned up their balance sheets and so they are in pretty good shape going into this.”

They have also been buying equipment to replace older equipment, but not taking a worrisome amount of debt to do that, Woolverton said. Land values have also gone up, so their debt-to-equity ratio has actually gone down - leaving farm finances in good shape.

But farmers and lenders alike still fret about the rising costs of fuel, fertilizer, seed and other farm inputs.

“We’re seeing more request because of rising fuel prices and the cost of chemicals,” Hamilton said. “But with commodity prices being as good as they have been, it’s still looking pretty good.”

The Associated Press contributed to this report.

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