Bill Watson knows the farm financial outlook can change quickly. Watson, the president of UMB Bank’s agribusiness division, said Jan. 31 that interest rates are now less likely to see increases after an announcement from Federal Reserve Chairman Jerome Powell.
“That picture changed a lot yesterday when Chairman Powell wrapped up the Fed meeting saying the outlook on interest rates has changed,” Watson said. “The case for rate rises has ‘weakened somewhat.’”
Watson said interest rate increases had been likely, but now rates should remain mostly stable, with the possibility of “a little uptick.” Overall, interest rates are reasonable, he said.
“We’re still at a very acceptable interest rate,” Watson said. “It’s really not interest rates that are going to influence people’s decisions.”
He said farmers are watching the trade situation with China.
“If we could settle things with China, that would help the markets, certainly the soybean market, going forward,” Watson said. “It would just provide more certainty. The unknown is just what these grain markets hate most.”
He said the results of trade talks could impact growers’ planting decisions.
“They’re holding off for their final decisions,” Watson said. “They’ve maybe bought 80 percent (of their seed), but they’re holding off their last 20 percent based on what happens with China.”
Watson said UMB has helped borrowers with decisions like whether they need to sell equipment they’re not using as efficiently as possible or sell some land. He said grain-only farmers in particular have struggled.
“A lot of this is about debt structuring,” Watson said.
At a Jan. 16 briefing on agriculture credit conditions, three Farm Credit CEOs talked about the challenges facing farmers right now.
Kathy Heustess, CEO of ArborOne Farm Credit in South Carolina, said farmers are squeezed by finance issues and challenging weather, including exceptional delays during harvest.
“They are stressed,” she said.
Heustess says the challenges are tougher than some farmers have ever faced.
“One of my farmers told me, ‘I’m ashamed to tell you last night I sat down in my chair and cried. In 40 years I’ve never felt the way I do at this point. I don’t know how I’m going to be able to pay my loan,’” she said.
She said there are some things she and other lenders are doing to try to provide relief during the tough times, including payment deferrals, re-amortizations and paying out Farm Credit patronage payments early. They also provide analysis and advisors for farmers, and are taking input from farmers about how to better serve them.
“All of this in an effort to show we care,” Heustess said.
Mark Jensen, CEO of FCS of America and Frontier Farm Credit in Omaha, said ag markets have spent the last four years reconciling a different, lower price level. He doesn’t see an end to the tough farm economy on the horizon.
“We don’t see anything in the near term to change the price environment,” he said. “We assume we’re sitting at this level of prices for the foreseeable future.”
Jensen said there are things lenders are doing to help, like interest-only payments, but that can only go so far.
“But for some of our customers, after three or four years, some of those options are being limited,” he said.
Growers do have some other options.
“Asset sales are fortunately still an option for a lot of our customers,” he said. “Real estate values have generally held even.”
Jensen pointed out the situation is tough, but different from the 1980s.
“The overall debt load on a percentage basis is about half what it was in the ’80s. We’ve seen real estate values essentially hold study (in the current situation),” he said.
Farm Credit had a principal deferment program, which helped some producers with cash flow, Jensen said. They also have used lending caps based on property values and helped farmers create “sustainable cash flow projections based on $4 corn vs. $6 corn.”
Marc Knisely, CEO of AgCountry Farm Credit Services in Fargo, North Dakota, said it’s hard to pencil out a profit now.
“In general, when we look at the commodities in our area, it’s really hard to project a profit,” he said.
Knisely said farmers need to balance being realistic about the present with knowing it won’t stay this way forever.
“You need to build these cash flows on long-term sustainable prices,” he said. “We have to understand this is an unusual time in agriculture as well.”
In addition to financial help like restructuring loans, payment deferments and interest-only payments, he said the farmer wellness aspect is important.
“We’ve seen enough stress. Mental health issues continue to be something we’re very focused on in rural America and on the farm,” he said.
Jensen is still optimistic about the long-term outlook.
“We’re still bullish on agriculture,” he said. “We’ve been around for the last 100 years, and we plan to be around for the next 100 years.”