Posts Tagged ‘financing’

Keeping Farm Lending In Check

Thursday, April 21st, 2011

We are currently in the middle of a very bullish farmland market. Land sales in many areas across the Midwest are breaking records with each new auction.  The question is – What can slow down this ride that we are on?  There are many factors at play, but one key component is interest rates for farm loans and overall credit in the farm industry.  A recent Reuters article (U.S. Farmland Boom May Carry Long-Term Risk: FDIC) takes a look at ag lending practices and how changes may affect farming operations and the land market.

One important point the article mentions is that the FDIC does not see a problem at the current time with lending in agriculture.  One reason for this is that ag lenders and borrowers have long memories and have not forgotten the market crash in the early 1980′s, which was partly caused by many bad loans being given to borrowers with not enough equity to support the loans they received.  Low interest rates are definitely a major factor in helping fuel the market we are currently in.  That being said, most buyers that we have worked with are laying out significant amounts of cash as part of farm purchases.  While loans are still involved in most cases, buyers are avoiding putting themselves into highly leveraged situations that many farm owners found themselves in the late 1970′s and early 1980′s.

The article also offers up that lending institutions are doing their homework before handing out a loan.  They are requiring more money down and keeping repayment schedules strict to attempt to minimize bad loans.  The article also states that lenders have become more comfortable with simply turning down business that they feel would put their company in a bad position.

While it is possible to find support to both sides of the argument of if the farmland market is a bubble ready to burst, I think that the continued practicing of conservative lending practices, coupled with the sensibility of buyers to not over extend themselves, will help keep the farmland market strong.

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New Farmland Report Out!

Wednesday, May 26th, 2010

The Federal Reserve Bank of Chicago just released the May issue of their Agricultural Letter.  This publication focuses on farmland values and agricultural credit conditions across the Midwest.  The Fed gathers their information by surveying 215 bankers across the region and while the letter does a great job of discussing general trends in the agricultural community, keep in mind that specific “micro” areas, e.g., counties, townships, etc. may differ from state averages.

So what did we learn in the May issue?  As expected, farmland values increased in the first quarter of 2010, with the “I” states (Indiana, Illinois, Iowa) leading the way.  In addition, values in these areas were up from 4 – 8% over the same period last year.  Interest rates for farm loans in the first quarter of this year were lower than anytime during the past 24 months.  And finally, the letter also had some interesting articles that discussed the Price-to-Earnings ratio for farmland, loan repayment rates, and the outlook for land prices for the second quarter (85% thought that they would remain unchanged).

 If you’re truly interested in following agricultural trends in the Corn Belt, I would suggest subscribing to this publication (or continue reading our blog in the future!).  It’s one government report that I find both interesting and informative.

THE EVOLVING CREDIT SITUATION FOR RURAL BUSINESSES

Friday, July 10th, 2009

In the latest edition of Main Street Economist, the author, Brian Briggeman, examines the credit outlook for rural business owners and farmers since the downturn in the economy in 2008.  Briggeman explains that all borrowers, even high net worth farmers, have experienced more difficulty in obtaining loans.  Furthermore, even when those loans are secured, more collateral is being required the lending institutions.

The article speculates that the flow of money from the recently implemented American Recovery and Reinvestment Act, along with loan guarantee programs being offered by the Farm Service Agency and the Small Business Administration, may relieve some of the pressure we have seen in rural business lending.

The availability of credit for farmers and farmland investors will be an important factor to keep an eye on as we progress towards the end of the 2009 crop year.  If potential buyers in the farmland market struggle to obtain financing it could have a very real impact on farmland prices this fall.

To read the entire article, continue here

Where do you see the credit market in rural America headed?  How do you think the farmland market will be affected?  E-mail me your thoughts at eric@loranda.com

Source: Federal Reserve Bank of Kansas City