As producers work through their financial plans for 2017, most agricultural lenders are sticking with their farmer customers even though the balance sheets are not looking any better. Warren Graeff, SVP Agricultural banking with PNC Bank, says, for the most part, things will be a little better in 2017 than they were in 2016. However, he admits it is still going to be a very tight year, “Better yields in 2016 and a slight improvement in prices has improved farmer optimism and has made the loan renewal process a bit better.”
Graeff says, despite a lack of working capital for many producers, most lenders are willing to back growers and find a way to keep farming in 2017, “We have had some of our clients who have not had adequate liquidity and working capital going into a production year, but we have worked with them to restructure some debt. Some have voluntarily sold some assets, so at this point in time in our portfolio we are not seeing a major amount of stress among our clients.”
Making things more difficult will be an increase in interest rates. We have already seen one hike this year, and several more are expected. Graeff says this will be a serious issue for some farmers, “Particularly those who have a leverage position that would be a great than 50% debt to asset ratio, that interest expense can increase and cause more of a problem and hurt cash flow.” He added that this could become an even bigger problem for 2018, especially if earnings are not good in 2017.
Graeff says, despite an increasing need for credit by farmers, there will be enough lenders willing to work with farmers in 2017.