I had an opportunity last Friday to attend the Iowa Land Investment Expo in Des Moines. The event featured presentations on a variety of topics – from land investments in Africa to Iowa corporate farming laws. There was one talk in particular that I found quite interesting (The Land Market – A Lender’s Perspective). Jim Kluth of Farm Credit Services of America looked at the financial strength of farmers in his district, amongst other topics, and concluded what I had been thinking for quite some time – farmers today are much stronger financially than what the naysayers might lead you to believe.
As we’ve all seen and read, there are several “experts” who believe that the increase in land prices and rents the past few years will ultimately lead to a repeat of the early 1980’s when farmers overextended themselves and were forced out of business. I’ve said for quite some time that this isn’t the case, that farmers and lenders learned their lessons so a repeat of the financial calamity of 30 years ago, though possible, was unlikely. Unfortunately, I never had any real data to support my thoughts… until Friday. In the region that covers Iowa, Nebraska, South Dakota, and Wyoming, Farm Credit has over $6.8 billion in real estate loans with a 97.8% credit quality and a .17% delinquency rate – numbers that home lenders can only dream about. In addition, they have kept their loan-to-value ratio at 65% – a far cry from the 95% LTV ratio of 30 years ago. Farm Credit’s results are not unique… most other ag lenders are telling a similar story about their loan portfolios.
For clarification, I am not saying that there is a 0% chance that farmers will experience some financial setbacks in the next few years… all businesses have corrections as part of their normal business cycles. I’m just pointing out that farmers today have a much stronger financial foundation to stand on, which should help them weather the storms in the future.
