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Fed report hints of ‘growing risk’

There are signs of “growing risk” in the farm sector because of surging demand for farm operating loans.

That’s according to the latest ag finance report from the Federal Reserve System. Nathan Kauffman who heads up the Omaha branch of the Kansas City Federal Reserve, tells Brownfield they’ve seen a steady increase in large operating loans over the past year—and he says it’s something they’re monitoring closely.

“Especially at a time when farm income is declining, it raises questions about farmers’ liquidity and working capital and ability to sort of continue on and respond to any kind of shocks we might see in the coming months,” Kauffman says.

Kauffman says they are seeing a slight increase in delinquency rates.

“We are starting to see some initial signs of stress—a slight pick-up in delinquency rates—but nothing to the point that would generate substantial concern,” he says. “I think more of the concern is if this kind of environment continues, where we continue to see reduced cash flow and liquidity starts to be more of a problem at the same time that operating loans are continuing to rise.”

Kauffman says agricultural banks have continued to post relatively strong returns, but bankers are expressing some concern that reduced cash flows could increase future risk for the farm sector.

AUDIO: Nathan Kauffman