Banking & Finance, Food Service & Agriculture, and Real Estate

Farm loans continue to grow

Farmers experiencing fourth year of economic downturn due to low commodity prices.

August 17, 2018
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The number of farming loans has increased as farmers battle the financial woes of the agricultural industry.

Travis Jones is the executive vice president and chief financial officer for GreenStone Farm Credit Services, a Lansing-based financial institution that serves members in Michigan and in northeast Wisconsin with an office in Grand Rapids. He said GreenStone’s loan growth increases by 5 to 8 percent annually.

During the second quarter of this year, GreenStone has seen a 6 percent increase in loan growth compared to last year during that same time.

“We have just posted our second quarter stockholder report indicating earnings of $40.1 million for the three months ended June 30, 2018,” Jones said. “Comparatively, net income was $33.4 million for the same period last year. Year-to-date earnings for the first half of 2018 were $85.9 million, a 20 percent increase over the first six months of 2017. (Our) owned and managed loan volume totaled $8.6 billion at June 30, 2018.”

GreenStone is a member-owned cooperative that serves 24,000 members across both states, including about 6,000 members in West Michigan.

The increase in the number of loans is because “Michigan farmers are seeing their fourth consecutive year of an economic downturn, and cash reserves at times have been diminished,” according to Jones.

There are about 10 million acres of farmland in Michigan and the state is home to 52,194 farms, according to the Michigan Department of Agriculture and Rural Development.

The economic downturn, in part, can be credited to low commodity prices for farmers. In November, Patrick O’Keefe, CEO of Grow Michigan, told the Business Journal grain prices have fallen for years.

“Prices have fallen since the high prices of 2012 when wheat was $9 per bushel — now $4.50. Corn has fallen from $8.50 to $3.75 and soybeans from $18 to $9,” O’Keefe said.

In addition to the drop in grain prices, Jones said dairy farmers also are struggling because there is a global oversupply of milk, particularly in Europe and the United States. The decrease in grain prices is because South America and the U.S. are growing a lot, which means the demand for grains has slowed. The increase in lending also is attributed to real estate transactions.

“We have a number of customers who wait for an opportunity, a downturn like this, to go out and expand,” Jones said. “They may buy a neighbor’s farm for a little lesser price in today’s economy. So, they wait on this opportunity to expand their own operations.”

GreenStone is not the only farm-related financial institution that has seen an increase in lending activities in the agricultural industry.

U.S. Sen. Gary Peters, D-Michigan, helped introduce amendments to a farm bill that passed the Senate in June to help the U.S. Department of Agriculture’s Farm Service Agency by increasing the available federal funds used to make direct operating microloans by up to $5 million. It would allow for at least 2,500 additional loans for qualified small farmers.

“Small farmers in Michigan and across the country rely on FSA loans to support their operations when traditional lenders aren’t available, but increased demand on the program can mean farmers (will end) up waiting months to get the financing they need,” Peters said.

There are currently more than 2,300 Michigan farms with FSA loans totaling over $630 million. The farm bill is pending the president’s approval after a few changes were made, according to the Senator’s office.

There has been an increase in loans, according to Peters’ farm bill and GreenStone, and now that tariffs have been imposed on farming products, the need for loans is expected to increase even further.

“While we are concerned about the potential long-term impact of the tariff repercussions on our members, they do not directly affect the way we do business with farmers,” Jones said. “They do, however, impact the prices, particularly for soybean farmers, which may, in turn, require those farmers to access more lines of credit for their operations.”

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