Pub. 11 2016-2017 Issue 4

www.nebankers.org 28 Extraordinary Service for Extraordinary Members. Farm Lending Can Still Be Good for Nebraska Banks John Blanchfield I S IT TIME FOR NEBRASKA BANKS TO SHED FARM LOAN ASSETS, or is it time to look for new opportunities in agriculture? USDA projects that 2016 net cash farm income will level out around $94 billion, down from the record $135 bil- lion received in 2012. While 2016 will mark the third year in a row of falling farm income, the rate of decline has greatly lessened and farm income may be leveling off. Agriculture faces additional pain as farmers adjust to what may be an extended period of low prices. Farmers are working to right size their business models to meet this new reality. Family living expenses are being trimmed. Farm equipment manufacturers are seeing reduced sales. Machinery dealers have a glut of used equipment on their lots. Cash rents de- clined slightly between 2015 and 2016. All of these develop- ments are evidence that farmers are getting the message and they are making adjustments to their spending as quickly as they can. While all of this economic data points to a rather grim reality, some mitigating factors will make the adjustments being made by farmers less painful. Despite political turmoil over the creation of the last Farm Bill (The Agriculture Act of 2014), agriculture ended up with a fairly conventional piece of farm legislation that has some serious money in it for farmers if prices remain low. In 2015, the first year there was a pay- out, the Farm Bill paid more than $618 million to Nebraska farmers. In October, USDA announced that the FarmBill will pay out more than $7 billion in 2016 to 1.7 million farmers nationwide, and Nebraska farmers could receive more than $700 million before the end of this year. Banks will not escape all pain during this period of eco- nomic adjustment, but three key elements in place today will help bankers mitigate the painful economic adjustments that are occurring in agriculture, and will give some bankers the opportunity to grow their ag loan portfolios. Congress created a unique lending tool just for ag lenders at the end of the 1980s—a secondary market for farm real estate mortgages, known today as Farmer Mac. Inmany cases, com- munity bankers have seen their farm customers grow beyond what they can accommodate due to riskmanagement concerns and legal lending limits. Innovative community bankers have turned to the secondary market created by Farmer Mac; as a result, they now originate and sell their farm real estate mortgages, preserving income and the relationship with their farm customers while shedding credit and interest rate risk.