Ag banks did their tightening after the '80's. Farmer financial numbers are generally good, except maybe some dairy and swine. There is plenty of money around here.
Talked to a lender about a week ago. 6.9% on 30 year mortgage with 20% down or nothing down if I will allow them to use other real estate. Farm land prices still strong.
I am an auctioneer, and we sell several farms a year. No one has had any financing problems we know about, but or office is also involved in commercial real estate. We should be watchful for what has happened there. Nationwide, commercial property values dropped 40% last year, the industry expects another 30-40% this year, due to the empty buildings and stores all over the nation. Many of those loans are about 80% to value, and are on a 5-7 year renewal basis. Now when they come up for renewal, the banks are scared, and demand new appraisals. When the appraisals come in 40% less, the loan is suddenly up-side down. Our brokerage office recently sold a factory building appraised at over $5 million for $1.8 million, and the bank was eager to accept it as a short sale. This may be the next bank crisis and will hit many small banks hard.
As an auctioneer, I know first hand how heart-wrenching the 80s were, but thankfully the Ag community is strong now, and most farmers have good equity. If you do not have land equity, prepare for the same trap the commercial market is in.
Most swine problems seemed to hit bottom here in NC by late last year. Not much bad news in region that I've heard in the past few months, and we are getting excellent pigs that are growing very well, so maybe the worst is behind everyone for a while.
So are things going to change again Kay?
There is an expected interest increase coming in Canada today.
Farm land sales have been hot here. Land going for $6,000 per acre with swine buildings on it and over $10,000 for good land with no swine buildings.
Swine price in Ontario is probably breakeven for most producers and profitable for lots with less capital cost and good production.
Interesting numbers of swine shipped in Ontario where we used to ship 120,000 or more each week numbers have fallen to around 80,000 and with our holiday last week there were just under 69,000.
With reductions of that magnitude we should have higher prices.
BTW I do not think many swine producers are buying land in Ontario.
I think the regular Ag Lenders last year really pulled in rug on the Dairy and Pork producers.
I also see the banks requiring new land purchases to be paid down to where the land will cash flow.
$3.30 corn and $8.50 beans will not pay for $6,000/land.
Land will probably stay firm because of a store of value. Lenders are not going to help create another 1980's...
Credit as a percentage of purchase price will be less and less if land values continue to rise...
That's what I'm seeing out there..
I'm not sure about farmland but I think ag credit in general has really tightened up. We are filling out way more paperwork and taking longer to get answers. And our cash flow, profitability, and credit rating aren't a single bit of the issue. I'd like to find out about real estate loans but there isn't any ground around me for sale.
I just wonder if some of today's caution is not in knowledge of how much they have already overextended credit on land that won't cashflow. Ag cannot exist in a bubble forever, and I am not so sure it is actually enjoying that much insulation now, except in the form of overvalued land equity.
In that event, it's no different than house-flipping finally catching up with us, and the commercial real estte market that has taken a tailspin, too. If money was lent on land that did not carry off its own costs of acquisition, then it is not one iota better than the average house mortgage that lacked income verification to me....
I am a loan underwriter for a local farm credit. First off, rates are incredible low. I personally wonder if these rates stay low for much longer, how we avoid a bubble. None the less, I would say that lending has tightened. It is not becuase there is a shortage of capital available, but more of a result of increased regulation. What I am seeing on my end is a large seperation in wealth.
I have clients that have a high net worth and farm 3k-4k acres that have leveraged themselves to buy $5K land and equipment and have not made that much money that last 2 years, on the other hand I have 1k acre farmers with little debt that have just raked in. I would not judge a book by its cover right now.
Those clients with a higher leverage position, regardless of the industry, are expierencing a higher level of stress right now and we are hesitant to put additional credit out the door today. For good clients we are still trying to keep the dollars per acre within a level that would cashflow on a rental rate of $185-$200, less RE taxes based on a rate of 8%. This usually works out to ~ $2,000/acre, we might go up to $2,200-$2,500 based on financial strength. This requires alot of liquidity or equity put into a land purchase, and does help to keep a bubble contained.