The United States and China reached the first phase of a trade deal on October 11th, postponing the next round of tariffs that President Trump planned to impose on Chinese goods the following week. Under the trade deal, which is still being negotiated, China agreed to buy billions of dollars’ worth of American agricultural products annually. China’s agreement to purchase U.S. agricultural products was likely at the center of negotiations for this trade deal because there has been a decline in U.S. farm revenues over the past few years. The decrease in farm revenues is troubling for many reasons, one of which is that, in this year alone, farmers are expected to hold over $400 billion in debt.
Of the over $370 billion in total farm debt in 2018, the USDA’s Farm Service Agency (FSA) provided roughly 2.6% of that debt through direct loans and 4% to 5% in loan guarantees. The Farm Credit System (FCS), a federal government-sponsored enterprise, provided 41% of the total 2018 farm debt. Commercial banks were lenders of 42% of the total agriculture loan debt in 2018. During the first quarter of 2019, agriculture loans held by FDIC-insured institutions totaled $184 billion — with community banks holding 69% ($127 billion) of total agriculture loans. At the beginning of this year, the U.S. saw the delinquency rate for FSA loans reach its highest level since 2011 — this was also true for farm loans held by community banks. Indeed, in 2019, FDIC-insured banks have seen a rise to 2.39% of agricultural loans that are at least 30-days past due, which is the highest delinquency rate since 2012.
Farming has always been an unpredictable and risky business, especially since farmers are beholden to Mother Nature, fluctuating consumer demands, and foreign trade policies. In light of these common adversities, farmers and financial institutions are closely watching these factors to determine if this new year may continue to see farm revenue decline, debt held by farmers grow, and default rates for farm loans increase.