Authors
Each year the Supervision and Regulation Risk Team conducts an annual survey of Ninth District state member banks (SMB) that have agricultural concentrations. The survey included 88 percent of the most concentrated banks and 36 percent of banks with moderate concentrations, for a total coverage of 63 percent. The banks surveyed represented all agricultural geographies in the District. Key topics included 2017 and projected 2018 debt service coverage (DSC) ratios, operating loan demand, customers with carryover debt, land sale activity and prices, and the overall outlook. These are the key results:
- 74 percent of the bankers anticipate their median borrower to have a DSC ratio below breakeven in 2017
- 26 percent of the bankers anticipate that more than 10 percent of their customers will have carryover debt from 2017
- The volume of farmland sales remains low and often tied to individual circumstances, making it difficult to determine the overall stability of farmland values.
The following charts reflect banker responses to key questions discussed during the survey calls.
Survey responses related to debt service coverage were consistent with the recent year trends. Low commodity prices and relatively high fixed costs have compressed margins and created operating losses over several years for many producers. While strong yields and government program support have helped mitigate losses in many parts of the District, bankers have observed a significant reduction in producer working capital. Overall, bankers anticipate producers cash flow to be slightly better in 2018 if yields reflect recent performance. Bankers reported that producers with tight margins have often used up existing working capital, and equity deterioration may be beginning.
Bankers reported that carryover debt is a prevalent issue in the District. Nearly all bankers expected to see some level of carryover from the 2017 operating cycle. Most reported that they anticipated the level of carryover debt to be moderate. However, about a quarter of bankers surveyed anticipated that more than 10 percent of their customers would have carryover debt, and a few anticipated that more than a quarter of their borrowers would have carryover debt from the 2017 cycle.
General trends show that banks in livestock regions (Montana) showed less farmland value stress, with all bankers reporting stable values or slight deterioration. More deterioration was reported in crop regions, however to a varying extent, as bankers from the same regions gave differing responses.
The full Summary of Agriculture Conditions is available at:
https://minneapolisfed.org/2017AgSurveyReport.
