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SW MN | Most real estate that is financed has plenty of collateral supporting it, with either down payments or additional real estate as security. What will start the domino effect is cash flow and repayment. In the last go around of 2013-2019, I believe that there were places that had went to interest only on some real estate notes (I had a customer show me his letter from Farm Credit) just to try and get by another year. I think it is one of the lenders on here that already has spoken about working capital being drained and losses popping up after a pretty significant crop year with good prices to be had. With the high cost of inputs, coupled with interest rates that are probably double what long term financing rates were when the loans were taken out, you have the recipe for a perfect storm of over zealous regulators putting the screws to banks and farmers about a bad year or 2 of farming.
Debt service is going to be tricky for some operations that leveraged themselves while growing. How many farmers have started to reduce their equipment values because the precipitous rise in values is now heading the other direction (see auction values)? We have taken some pretty significant cuts on our cash flow coming into this year from last year, in an industry that isn't know to be flush with profit and habits of spending 2-3 years longer than it should. If you ask bankers from the 2018-2020 window, they would tell you there were a lot of operations hanging on by a thread before the market took off and healed a lot of situations. Cattle guys are probably just healed up from the last calamity. | |
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State of Ag Banking
