The top regulator for the nation’s Farm Credit banks says that while agricultural loan quality has deteriorated last year, it’s too early to know whether producers will need additional Market Facilitation Program payments for 2020.
The “phase one” trade deal with China and other new agreements could obviate the need for a 2020 MFP, Farm Credit Administration Chairman Glen Smith, told the House Agriculture Appropriations Subcommittee on Wednesday.
"It may take patience, but at least the groundwork has been laid for trade normalization and improved farm prices,” Smith told the panel.
Smith acknowledged there has been little market reaction to the signing of the China "phase one" agreement and that soybean futures have actually declined. “Hope is better than no hope. But the markets have taken the stance of, ‘Show me.’ They need to see ships going overseas with our products. We need to see actual export numbers before they react."
He acknowledged that was a “lot of discussion right now” about 2020 and the possible need for more federal aid. But, he added, “We’re months from putting crops in the ground …. The attitude needs to be, ‘Let’s see if this works,” referring to the possibility of a surge in exports.
After the hearing, he told reporters that it will probably be this fall before it is clear whether additional MFP payments will be needed.
Agriculture Secretary Sonny Perdue has warned farmers not to expect a 2020 MFP but has stopped short of ruling it out. The 2019 program was announced in May as farmers were still planting.
Elsewhere on Capitol Hill Wednesday, Treasury Secretary Steven Mnuchin told the Senate Finance Committee that implementation of the China trade deal had "slowed down" because of the coronavirus epidemic. He said it would take another two to four weeks of data to evaluate the impact of the epidemic on the Chinese economy.
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Measures of farm loan problems ticked up slightly last year. About 7.4% of the Farm Credit System’s loan portfolio was considered to be of “adverse quality” for the third quarter of 2019, up from 6.6% at the same period a year earlier. About 0.92% of the system's loans were nonperforming in the third quarter of 2019, up from 0.83% the year before.
He said a spike in farm bankruptcies in 2019 was due in part to problems in the dairy sector and challenges facing forestry products, which were ineligible for MFP payments, in states such as Georgia.
MFP “was a tremendous help to shore up those cash flows, shore up those margins, improve liquidity, but it didn’t include everybody," Smith said.
Chapter 12 farm bankruptcies rose by 20% in 2020, with the largest increases occurring in Wisconsin, Georgia, Nebraska and Kansas. Part of the increase was due to a federal law raising the size limit on farms that could qualify for using Chapter 12, according to economists.
“We’re watching those trends very closely from a national perspective," he said. "Certainly key areas like Wisconsin, Georgia, dairy, forestry, bear watching.”
The financial stress in Georgia also was due to the impact of Hurricane Michael in the fall of 2018.
Despite the softening in some farmers’ finances, the Farm Credit System’s total capital rose to $62.4 billion by Sept. 30, up from $58.2 billion a year earlier. Nearly 80% of the system’s capital comes from retained earnings.
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