WASHINGTON, March 29, 2017 - Farm incomes continue to drop and producers are having tougher times paying back loans, but the overarching agricultural credit system remains strong and bankers are doing what they can to help borrowers survive.

That was the cohesive message presented by some of the biggest names in farm banking to members of the House Agriculture Committee today as lawmakers look ahead to the 2018 farm bill.

“With commodity prices continuing at low levels, we are watching closely for signs of stress among our customers,” CoBank President Tom Halverson (pictured above) said in testimony. “Loan quality for CoBank, however, remains very strong by virtually every measure, despite stresses in the rural economy that have impacted our customers.”

CoBank provides the financing for 23 agricultural credit cooperatives like Frontier Farm Credit, which in turn lend to more than 70,000 farmers and ranchers in the Northeast, the Plains and the West.

Years of building capital and a conservative philosophy are the primary reasons that bankers in the Farm Credit System are thriving despite a rocky farm economy, said Doug Stark, president of the Kansas-based Frontier Farm Credit.

 “The current cycle we’re in is one that we anticipated for some time,” Stark told lawmakers in the hearing.

Five years ago when commodity prices were strong and credit was plentiful, credit cooperatives knew that the situation couldn’t last, Stark said, so they stuck to the philosophy of being conservative in good times and bold in tough times.

“Rather than tighten our lending standards during tough times,” he said, “We’re actually trying to lean into the wind.”

That he said, means extending additional credit to restore liquidity and being flexible about lending terms.

Rep. Tim Walz, D-Minn., told Agri-Pulse he was impressed with the bankers’ efforts to help borrowers through a time of depressed prices, falling land values and weak income.

“They anticipated there would be some tightening,” Walz said. “What I was impressed by was them showing me where their portfolios lie … and how they’re trying to use a laser to go in and say, ‘You know what, your overhead is too high. Here’s what you can do’ and providing resources to help them. They’re really partners in the financial management of these places.”

Despite the solid footing the banks in the Farm Credit System say they are on, officials admit that their portfolios have suffered - although not as much as they could have in such a depressed farm economy.

“I’d say our credit portfolio at CoBank specifically has started to soften a little, but surprisingly little compared to where we are in terms of commodity prices being at a three-year low,” Halverson said in an interview after the hearing. “Net farm income being off 50 percent since 2013, you would have thought we would have a softer credit portfolio that we actually do have.”

Even some of the most stable agriculture businesses are having trouble, Halverson said, but CoBank is working to make sure they survive.

“We’ll work with them to provide appropriate liquidity support in this challenging environment … as they take steps that they need (in order) to tighten their belts … until we get to the other side of this period.”

One of the biggest problems, though, is that the bankers don’t know is how long that will take. A recent USDA forecast predicted that net farm income will fall this year by 8.7 percent to $62.3 billion. That would be the lowest level since 2002.

“The thing that we don’t know – and wish we did know – is how long this downside is going to last,” said Jeffery Hall, a board member of the Farm Credit Administration and another witness at the hearing.