Winter wheat

Winter wheat is ready for harvest as the sun sets on Nessan Farms near St. Xavier. 

A rough farm economy is taking a toll on Montana agriculture loans.

The Federal Reserve Bank of Minneapolis reports that bad ag loans are on the rise in Montana and North Dakota as crop and livestock prices soften. The percentage of bad loans is double what it was after the recession.

The loan data was part of a five-state report on farm bankruptcies in Minnesota, Montana, North Dakota, South Dakota and Wisconsin. For bankruptcies, Montana and North Dakota farms barely registered, with one each for 12 months ending in June 2018, while Wisconsin reported 50 and Minnesota 20. Dairy farm bankruptcies were increasing while cattle and soybean operations had the worst losses overall.

Bad ag loans are often an indicator of things to come, according to the Fed, and with bankruptcies on the upturn elsewhere, they could point to future challenges for Montana agriculture.

However, ag loans are also among the most secure, meaning there’s more cause for scrutiny than alarm, said Melanie Hall, Montana state banking commissioner.

“Right now, there’s certainly a dip happening in the ag market. Everybody knows that prices for commodities are struggling a little,” Hall said. “Our banks are historically incredibly good at working with their borrowers to work through troubled times.”

Farm bankruptcies may not be showing up in Montana, but farm consolidations are, said Carra Greyn, Montana’s bank examination manager. Instead of filing for bankruptcies, farmers in financial trouble are selling to other producers or leasing their operations to someone else to manage financial stress.

Montana borrowers began showing stress in 2016 as wheat prices slid from historic highs to a paltry $2.16 a bushel, a price well below what farmers at the time said they needed to break even. Overproduction worldwide was blamed for the drop. More than 600,000 acres normally planted in wheat shifted to other crops.

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State banking officials in 2016 began advising lenders carrying a lot of farm loans to drill into the details of borrowers, not only what kind of crops farmers were growing, but also whether those crops were planted on non-irrigated land. If the grain prices were falling, was that translating into cheaper feed for local ranchers? And was federally subsidized price loss insurance likely to help?

The concern only increased in 2017 as northeastern Montana experienced the nation’s worst drought.

“The 2017 drought, it affected probably all of Eastern Montana. I think the interesting part would be: were those government programs around for that 2017 cycle? Because it really surprised us how much those helped in the 2016 operating cycle,” said Greyn.

There is federal money on payment slips for 2017. In mid-November, U.S. Department of Agriculture posted $151.9 million in payments to Montana farmers to cover price loss and crop damage in 2017. Most of that money was for barley, canola, and wheat losses. Total subsidies will increase as the USDA gets around to lentil, chickpea and mustard farmers. Only one of Montana’s 56 counties didn’t have farmers receiving subsidies for 2017 price losses.

Right now, Montana banks undergo examination about every 18 months, but as the agriculture economy continues to struggle, the cycle will change for banks with high concentrations of the ag loans, Hall said. State regulators would begin scrutinizing banks every 12 months, or even every six months if the farm loans start to sour like home loans did in the Great Recession.

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Agriculture and Politics Reporter

Politics and agriculture reporter for The Billings Gazette.