Mpls Fed survey shows banks worry about farmer debt

Farmers will meet with their bankers in the coming months to renew loans for next year. A new Federal Reserve Bank of Minneapolis survey shows that bankers are concerned about their farmers' loans.

The survey, which took place between April and June, got replies from 84 bankers across the Federal Reserve's Ninth District. The area includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin, and Michigan's Upper Peninsula.

The survey found that loan demand grew modestly across the district between April and June. But bankers expect to make fewer large ag loans as farmers' finances weaken.

Senior Agricultural Coordinator at the Minneapolis Fed, Tait Berg, said row crop farmers in particular have banks concerned.

"The margins are really thin, and there's potential for break-even, if not losing money this year," said Berg. "And when farmers lose money, they need to obviously find some type of way to make up for that loss."

When people see their debt pile on, they can take money from their savings account to pay it off, Berg said. For farmers, their savings account is often their farmland.

"So they take more debt against their farmland, and then unfortunately that creates higher future payments," said Berg. "If there are many years of negative income, it can snowball into a lot of debt."

If a farmer-borrower has their debt tied to their farmland or other assets and has experienced several years of low profits or losses, they may eventually need to consider selling off assets like land or equipment to make payments.

That means bankers will pay closer attention to ag loans this season to make sure their clients are in a sustainable financial spot.

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