Bankers in some parts of the Midwest are tightening the screws on farmers in the new year.
Fifty-two percent of bankers in a 10-state area said they’ve boosted collateral requirements for farm loans, according to the Rural Mainstreet Index, a survey of business conditions conducted by Creighton University in Omaha.
Weak farm income — driven by depressed corn, soybean, beef, pork and milk prices — was the reason bankers are asking farmers to put up more land or machinery as collateral. The survey covers Minnesota, North Dakota, South Dakota, Iowa, Illinois, Nebraska, Kansas, Missouri, Colorado and Wyoming.
That level of banks seeking more collateral would be yet another sign of economic trouble in the rural Midwest.
“The basic reason you would increase collateral requirements is that you’re worried that the borrower may not be able to repay the loan,” said Joe Mahon, an analyst at the Federal Reserve Bank of Minneapolis.
The 52 percent figure may be too high for Minnesota, however. The latest survey from the Minneapolis Fed, from October, showed about a fifth of bankers said they had increased collateral requirements.
Bankers in Minnesota and Iowa said that while 2018 was a year of struggle for many farmers — with low prices driven lower by a trade war with China — the year-end financial picture is better than expected.
“We’ll know more in two or three months when we get through the renewal process. Right now it’s certainly better than we expected,” said Jeff Plagge, president and CEO of Northwest Financial Corp., a bank based in Spirit Lake, Iowa, 15 miles south of Jackson, Minn.
The second half of President Donald Trump’s aid package to farmers, which gives soybean farmers a total of $1.65 per bushel for their harvest, also helped.
Plagge said the 52-percent figure “sounds really high,” and he said farmers have been more proactive this year than they were in the farm crisis of the 1980s. They’re selling more crops ahead on the futures market and taking action to sell land or machinery without being forced to by their banker.
Ken Oraskovich, a vice president at First National Bank of Bagley, 30 miles west of Bemidji, said the majority of his clientele — cattle and grain farmers — are struggling to make their payments. But he added he expects corn and beef prices to rise in 2019, and he’s working with farmers.
“I’ve never had to sell anybody out in all my years of banking and I don’t plan to now,” he said. “We aren’t pushing guys for any more collateral by any means.”
Ernie Goss, the Creighton economist who has published the Rural Mainstreet Index for 12 years, said bankers in the more southern states he surveys are perhaps more likely to be boosting collateral requirements than those in the northern states.
But he also said he’s not surprised by the overall results, and senses bankers are more cheery than the farmers with whom they’re doing business.
“I’m doing some work with farmers in Nebraska and Iowa, and they all say the bankers are too optimistic,” Goss said. “Farmers are always real negative. They’re like economists. They see the glass half-empty.”