US farmers leaning more heavily on government loan programs

Farmers across the nation leaned more heavily upon the federal government last year to finance their agricultural operations amid low commodity prices and trade disputes, and more of the money they borrowed is now delinquent.

Although the U.S. Agriculture Department said it has not seen a significant change in loan delinquency rates because of the coronavirus pandemic, it expects an impact if the economic fallout continues.

Farm foreclosures have not increased, and the department has taken a number of measures to forestall them — including more flexibility for borrowers to extend repayments for annual operating loans.

The department said in an email that it also temporarily suspended loan accelerations and non-judicial foreclosures as well as stopped referring new foreclosures to the Justice Department. U.S. attorney's offices will determine whether to stop foreclosures and evictions on delinquent accounts they were already handling.

Nathan Kauffman, vice president and Omaha branch executive of the Federal Reserve Bank of Kansas City, said he does not expect COVID-19 to have an immediate impact on farm loans in part because of the timing of the pandemic.

Full COVID-19 Coverage

“It really started to intensify toward the later part of March, but that is a time of year when a lot of the major planting decisions and financing decisions … had already happened. So a lot of things had already been set in motion prior to the crisis,” Kauffman said, adding that if the crisis continues for a few more months borrowers are going to start thinking about those things again.

A state-by-state breakdown for the last two years of delinquent direct and government-backed loans that The Associated Press obtained through an open records request from the USDA's Farm Service Agency offers a glimpse into financial difficulties faced by producers that varies widely by geography and industry. 

Most vulnerable are beginning farmers and smaller agricultural operations that typically get their financing through the agency’s direct loan program. Those are typically the riskiest borrowers who cannot get financing elsewhere.

The agency directly lent those farmers more than $12.7 trillion dollars, and more than $639.4 million of that amount was delinquent as of April 30. That represents an increase of $1.26 billion in direct loans under that program and a jump of more than $8 million in delinquencies compared with the same date a year ago. Nationwide, 18.76% of government direct loans were delinquent.

“It is just a precarious time for the producers,” said Allen Featherstone, an agribusiness professor at Kansas State University. “Overall you would like to see the total volume going down, but we are adding volume that is ultimately backed by the federal government.”

Delinquency rates topped 30% for direct government farm loans issued in several states, including Florida, New York, North Carolina, Rhode Island and Texas. Thirteen other states have farm delinquency rates exceeding 20%. Hurricane-battered Puerto Rico was an outlier with a farm loan delinquency rate of more than 67%.

Just six states — Kansas, Missouri, Illinois, Indiana, Iowa and Hawaii — had direct farm loan delinquency rates in the single digits at the end of April.

A separate program in which the federal government guarantees that farmers will make payments on the loans they borrow from banks and other commercial lenders also was more heavily used. The government backed $16.58 billion of those loans, and $270.65 million of it was delinquent on April 30. That is a delinquency rate of 3.23%.

States heavily dependent on the troubled dairy industry — such as Maryland, Michigan, New Mexico and Wisconsin — all saw delinquencies rise on government-guaranteed loans, Featherstone noted.

The U.S. Agriculture Department said it will begin accepting applications May 26 under the Coronavirus Food Assistance Program, which will provide up to $16 billion in direct payments to farmers and ranchers impacted by the coronavirus pandemic.