MINNEAPOLIS _ Midwest farmers and bankers face a reckoning this fall as low crop prices and a projected bumper harvest will produce financial losses for the second consecutive year.
After nearly a decade of boom times, farmers in the Upper Midwest lost $58 per acre on corn last year and almost $3 per acre on soybeans. Despite that, bankers around the region refinanced farmers' debt and lines of credit on favorable terms.
But with a second year of losses ahead for many farms, patience among lenders is running thin. A credit crunch now looms that would mark a decisive turn in the farm economy.
"One bad year, you can overlook that," said Brent Gloy, an agricultural economist at Purdue University. "When it starts to be multiple years, the stakes get higher."
Demand for corn has not kept up with ballooning supply, as the United States, China, Brazil and Argentina have helped expand global corn acreage by 18 percent over the past 10 years. Prices remain depressed for all farm commodities, and exports are undercut by a strong U.S. dollar.
Corn and soybean prices both tumbled after a mid-July report from the U.S. Department of Agriculture that showed the nation's crops in good condition, reinforcing the expectation of a new glut in the fall.
"There's going to be a time of correction," said Zach Rada, a farm business management instructor at Ridgewater College in Willmar, Minn., who works with about 60 farm families.
Already, bankers are forcing farmers to put up more collateral, provide financial updates more frequently and open their operations up for a lookover.
"In the past if you said you have 150 milk cows, they probably assumed you were right," Rada said. "Now we're going to see them out there actually counting."
Total farm lending by Minnesota-based banks has plateaued since 2014, after growing by 45 percent over the previous three years, according to the FDIC.
Lending has slowed in part because costs have dropped slightly, but mostly because farmers have grown more cautious about spending as crop prices have fallen.
"They tend to buy less equipment," said Todd Mather, a St. Cloud, Minn.-based senior credit director for Bremer Bank, one of the largest ag lenders in the state. "They tend to buy less farmland."
Growers have the option of locking in prices long before they start up the combines in the fall, and much depends on the timing of the sale of their harvest. Those who sold in early June, when the price for corn peaked at $4.43 per bushel, could end up having an OK year, Mather said, since that's on the high end of what bankers consider the break-even price for corn.
"If they pulled the trigger at $4.40 corn and where soybeans were, they're going to be sitting pretty good," Mather said.
Those who waited have been disappointed. The price of a bushel of corn has since dropped sharply, to around $3.30 last week.
When farm profit margins are so thin, and a 30-day swing can turn a profit into a loss, bankers are more apt to ask farmers when they're selling their crops.
