After a couple of years of great prices and good profit margins, we have seen the ag profit forecasts start to dip lower year by year. However, we had been consistently reassured that the ag economy was holding its own. Several indicators are considered when these outlooks are projected. One of the biggest ones was the repayment rate of farm loans. As the profit margins tightened, we were still making payments.
Well, that indicator is starting to change.
Nate Kauffman is a Senior Vice President with the Kansas City Federal Reserve. He says that we have seen this moment on the horizon for a few months and the increasing losses on commodity prices is the biggest culprit.
Kauffman is also pumping the brakes on this news. He says that the loans that are falling behind only represent a small percentage of farm loans out there. He says many are still very solid.
Of course, if commodity prices continue to drop and profit margins become even tighter, this percentage will likely increase.
Unlike in recent years, Kauffman says that interest rates are going to be a big obstacle for producers who are looking to get financing.
