Lower commodity prices and uncertainties about new federal crop insurance programs are making it tougher for Arkansas row crop farmers to secure operating loans.
Tight cash flow has already struck some growers as the percentage of loans going into state mediation jumped 74 percent in the first three months of 2015 compared with a year ago, the Arkansas Democrat-Gazette reported.
“No doubt, we’re in a little bit more of a stressful situation than we’ve seen in recent years in crop agriculture,” said Greg Cole, president and chief executive officer of AgHeritage Farm Credit Services.
With $3 billion in assets, AgHeritage is the state’s largest agricultural lender, according to Cole. He described the major commodities grown in Arkansas, including rice, soybeans and cotton, as being in transition, a situation caused by high inventories, a slowing in the domestic ethanol industry, as well as flat demand in growing economies such as China and India.
“We’ve enjoyed several years of really strong prices and profits up to 2014. Starting in 2014, we basically entered a down cycle caused by high inventories,” Cole said. A decline in commodity prices, coupled with a “radically” restructured safety net for producers provided under the 2014 farm bill, has made assessing loan risk difficult, Cole and other lenders said.
Steve White, a vice president of McGehee Bank in McGehee, said even though fuel prices have declined , the costs of equipment, fertilizer and seed have skyrocketed. Crop yields can be pushed only so far, he said, and to do that, growers typically need to increase their input costs. And there are limits to what plants can yield.
With lower commodity prices, land values have held steady or declined, White said. The value of equipment has fallen as growers hang on to gear such as tractors and combines rather than buying new.
The Federal Reserve Bank of St. Louis, which tracks lending by commercial banks, reported that as of Dec. 31, Arkansas lenders had about $1.24 billion in agricultural loans outstanding out of an overall loan portfolio of $40.7 billion.