Improving Farm Finances
It’s no secret that in the latter half of the 2010s farmers and ranchers’ financial health deteriorated. Producers experienced losses and took on more debt and tapped into working capital to keep operations financially afloat. Some operations fell behind on loan repayments. These trends have changed. Rising incomes since mid-2020 have resulted in a financial turnaround. The bottom line—financial conditions for the bulk of agricultural producers are better now than they have been for several years.
Several indicators spotlight the financial recovery for Nebraska’s farmers and ranchers. Commercial bankers in the Tenth District Federal Reserve Bank of Kansas City (including Nebraska) report loan repayment rates increased dramatically in the first quarter of this year (Figure 1). In fact, Nebraska led the District in improved payment rates. Last year, Nebraska’s loan repayment rate was second worst among the states in the District. Only Oklahoma reported a worse repayment rate. Now Nebraska is top in the District. Figure 2, also from the Tenth District, shows the share of bankers reporting lower loan demand in the first quarter. Here too, Nebraska leads the District with the highest share of bankers reporting lower loan demand, just edging Kansas. Other indicators tell the same story. The number of farm bankruptcies filed in Nebraska are off compared to last year. Land values are higher. And working capital ratios have improved.
What does the rest of the year hold? Continued strong demand, favorable growing conditions, improved supply chain logistics, and a favorable macroeconomic climate should hopefully mean smooth sailing for the remainder of the year to stable or better financial conditions. However, factors are present which could roil the waters. The rapid spread of the COVID-19 delta variant, continued inflation of input prices, or a sudden drop in exports might force a turn in course for agriculture. Hopefully, it’s smooth sailing.
Figure 1. Farm Loan Repayment Rates by State
Figure 2. Percent of Bankers Reporting Lower Loan Demand
