With last week’s release of the latest Beige Book, the summary of commentary on current economic conditions in each of the nation’s 12 Federal Reserve districts, Fed officials painted a picture of gradual financial attrition for ag producers in each district. But the data may not paint the full picture of the impact of declining markets. Loan delinquency, machinery financing and the ongoing trade dispute are three big factors to watch in the near future as ag producers wrap up 2019 production.
Though the report is largely bearish, it likely doesn’t reflect the full extent of the continued downturn. With fall row crop harvest underway in much of the nation — a process that’s already been delayed by unfavorable weather and field conditions — the full extent of continued marketplace erosion damage for crop and livestock producers won’t likely be clear until later in the year, for a few reasons.
1) Credit conditions and loan delinquency
First, one key measurement for financial stress is loan delinquency. The latest Fed data show general ag loan volume remains high, credit quality continues to decline, though that decline has slowed. The fact of the matter is there are delinquent loans around rural America, but the timing of the Fed’s data collection and the definition of “delinquent” play into what may be less-than-accurate data.
With harvest underway in much of the country, as it was when the Fed data was collected, the year’s financial challenges aren’t entirely clear for many producers. And many commercial banks report loans as delinquent after 30 days past due, but other ag lenders don’t do so until 90 days past due. Repayment of bank loans for ag customers in the Corn Belt, for example, are often tied to the completion of harvest and year-end marketing opportunities. So in reality, the full financial challenge for many producers won’t be clear until closer to the end of the calendar year.
2) Machinery financing
The machinery and equipment sector is another one that could foreshadow the full impact of the continued downturn in ag markets this fall as ag producers wrap up their 2019 production. Some producers may look to trim equipment budgets by selling individual pieces into an ever-softer marketplace after the 2019 growing season is completely wrapped up, while others may extend financing terms to lower payments. The degree to which either happens in the coming months will show the depth of the impact of the ag downturn on producers.
3) Ongoing trade disputes
Finally, the ongoing trade dispute — especially with China — continues to place ag producers in the continued role as the “tip of the spear” when it comes to who’s most weathering its negative market effects. Ag producers will continue to bear the weight of the market uncertainty the trade war continues to cause until an agreement is reached — and more importantly, “normal” trade resumes.
See more from the latest Federal Reserve Beige Book: https://www.federalreserve.gov/monetarypolicy/files/BeigeBook_20191016.pdf