The Farmer in the Dell Doesn’t Stand Alone

The Farmer in the Dell Doesn’t Stand Alone

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A June 2020 poll taken by the American Farm Bureau Federation (AFBF) revealed that 84% of Americans trust American farmers and believe they should receive financial assistance from the government to stay afloat as a result of the pandemic. Yet, many struggling farmers were left out of the initial federal aid package and, like many industries, some that did receive help are still struggling.

AFBF reports that farm bankruptcies for the 12-month period ending March 31st were up 23% over the previous year. As the pandemic continues to cause agricultural losses, the numbers are expected to climb even more.

The HEALS Act, if and when it passes, includes another $20 billion for agriculture. Combined with the CARES Act and other assistance received, that totals the $50 billion, which is the same amount the Farm Bureau had requested to get farmers and ranchers through the crisis.

We know it’s still way too early in the game to know if that will really be enough. We also have seen firsthand how COVID-19 has impacted growers in South Florida. They’ve been working with local groups to deliver produce to the needy, which may not be lucrative, but it’s been a lifesaver for many.

Our focus here is not the farmers, however, but the banks that underwrite them. There are currently more than 1,250 banks that have more than 25% of total loans used to finance agriculture or farmland. Our job is to monitor their performance and let you know if they have been negatively impacted.

Farm loans at U.S. banks actually decreased by 4.2% during the 12 months ending March 31, 2020. Since “Agriculture Banks” tend to be small, community banks, we are going to focus on them. Noncurrent farm loans at community banks in the first quarter alone was up 14%. That brings noncurrent loans as a percent of total loans to 1.53%.

Separate out the loans for farmland only and the numbers get worse. The noncurrent rate for farmland loans is 1.75% (up 27 basis point from year-end). In a perfect world, nonperformers would account for less than 1% of total assets. But, we are miles from perfect.

The 47 community banks listed on page 7 each have at least 50% of their loans invested in either farmland or other agricultural loans. They also reported (at March 31, 2020) that at least 2.5% of those farm loans (not total loans) are at least 90 days past due. They are listed in descending order based on the percent of farm/agri loans to total loans.

Instead of listing the actual amount reported as delinquent, we listed the banks’ Bauer’s Adjusted Capital Ratio (CR) next to its Leverage Capital Ratio. Without having to do any math, you can easily see that any bank with a negative Bauer’s Adjusted CR is struggling with delinquencies. Conversely, where you see the difference between the two CRs is slight, you can breathe a sigh of relief.

COVID could actually help boost some of these banks in the long run. After years of the population moving away from rural areas and flocking toward cities, COVID is making people rethink their choices.

Let’s take a look at 1-Star Ashton State Bank, Ashton, NE, the first bank on the list. It has one location with six employees. It’s a small bank (clearly); total assets are currently $18.5 million. It was established in 1908 to serve the needs of this rural community and was rated very well by Bauer in the early years. Ashton State Bank had a little bit of a rough patch in the early 1990s, but maintained at least a 3-Star rating even then.

It was quickly back up to 4-Stars, then 5-Stars, maintaining Bauer’s recommendation all the way through the Great Recession. Then, in 2015 things started to go South for the bank. Ashton State Bank’s assets topped out at about $23.4 million in 2014, then they began to drop. Why?

A look at the 2017 census (the most recent available) indicates that the population of Ashton, Nebraska dropped 20.3% in the seven years since 2010 to just 189 residents. Whether the cause was urbanization or a lack of desire in younger generations to take over farming, or something else entirely, we don’t know. What we do know is that where the community goes, there too goes the community bank.

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