Author: Charley Martinez

As mentioned in previous Southern Ag Today (SAT) articles (Martinez and Ferguson 2022), monitoring Non-Real Estate Farm Debt provides insight into debt health. Last year had periods of drought and increased input prices for producers. At the time of this article, planting is complete, producers are bailing hay, input prices have come down, and cattle prices are the highest since 2015. But, through the first quarter of 2023, there are mixed signals from the most recent call reports. As a refresher, every commercial bank in the U.S. submits quarterly Reports of Condition and Income which are known as call reports. Within these call reports are totals of agricultural loans and the status (on time or late) of the loans. Figure 1 displays the total loan volume (yellow line) and total loan volume for all three late type volumes (30-89 days late, 90+ days late, non-Accrual) for the last nine quarters. The totals are for all the Southern Ag Today States. 

            Through the first quarter of 2023, non-accrual (blue line) loans continued to decrease, which is positive, and loans that are 90+ days late (grey line) remained relatively the same. Total loans (yellow line) are down from the previous quarter, which is expected due to seasonality trends. But total loan debt is up 4.8% compared to a year ago, which could be due to the effects of input price increases in 2022. The most concerning statistic is the loans that are 30-89 days late (orange line). Debt that is 30-89 days late is up 5.2% from a year ago, and the highest since Q1 of 2021.  Q1 is seasonally the highest quarter for 30-89 days late loans, but given that it’s up from a year ago, this loan type will provide an indication of debt health moving forward in the next round of call reports that come in a few months. 

            From a sky high view, the call reports indicate that there are some possible caution signals for debt in the SAT states. However, total non-current debt is approximately 1%, which is still relatively low. The next two quarters will provide answers if the signals are false alarms or true signals of concern. In the coming months, it is crucial that producers are mindful of their working capital and continue the positive production and risk management strategies they have implemented thus far. 

Figure 1. Non-Real Estate Farm Debt from 2021 Q1- 2023 Q1

References

Martinez, Charley, and Haylee Ferguson. “Current Non-Real Estate Farm Debt“. Southern Ag Today 2(30.3). July 20, 2022. Permalink

Martinez, Charley. “Current Non-Real Estate Farm Debt.” Southern Ag Today 3(23.3). June 7, 2023. Permalink

The beginning of the year marks the start of female and bull buying decisions for producers in the southern states. Whether a producer is selecting for Continental, British, American, or a combo of the three, this publication serves as a reminder of the foundation traits to manage for this buying season. Foundation Traits refer to Stayability, Fertility, Structural Soundness, Udder Quality, Disposition, Adaptability and Maintenance, and Index Selection. Selecting cattle based on these traits can increase the likelihood of the operation being profitable in the short and long term. Below is a description of three of these traits. 

Stayability: a cow’s ability to remain in the herd past its “break-even” point is determined by multiple traits. The all-encompassing phenotype that is recorded by many breed associations is called Stayability (STAY). Stayability measures the likelihood that a bull’s daughters will remain in the herd long enough (typically 6 years old) to recoup their development and maintenance costs if they breed on time.

Fertility: In concert with Stayability, maintaining fertile females and keeping daughters out of bulls that are fertile is critical to the herd’s profitability. Failing to rebreed is the most common reason cows are culled from herds. That said, a surprising number of cows
get a second chance when open. The extra feed and variable costs required to maintain that cow will hinder the profitability of the operation if it stays in the herd. When a cow misses a calf, it does not become profitable until year 7 or 8, depending upon calf prices. If a cow misses twice, it does not become profitable until year 11. Thus, while it is possible for cows that miss a calf to be profitable, it takes more years to realize that profit, which makes fertility a critical financial driver. 

Structural Soundness: Cattle must have good feet and leg structure to graze, travel, and breed, and the discomfort of poor feet and leg structure reduces the time they spend grazing or drinking. Besides directly impacting performance, it creates animal welfare issues. Hoof trimming and other management interventions may prolong an unsound cow’s productive life, but these are likely to incur costs and significant additional labor. Figure 1 displays scores for foot, claw, and side leg. 

Figure 1. Phenotype scoring scales for foot angle (top), claw set (middle), and side leg profile (bottom). A score of 5 is the most desirable for all three scores.

The impacts of foundation traits on cowherds reach far beyond making a producer’s life easier. Many of these traits have direct costs that impact the bottom line, while others add labor. This additional labor often is confused with convenience, but its actual financial cost is often undervalued or completely ignored. A producer’s time is worth something! Depending upon a producer’s breeding and calving seasons, the cost of spending additional time or incurring additional variable costs affects the operation’s profitability and efficiency. A more in-depth description of the foundation traits can be found here.

Martinez, Charley, Troy Rowan, and Justin Rhinehart. “Managing for Foundation Traits in Beef Cows.” Southern Ag Today 3(2.3). January 11, 2023. Permalink

Through 2022, the ag sector in the Southern Ag Today (SAT) states has sustained periods of drought, volatile prices in respective markets, and interest rate hikes. As mentioned in a previous article (Martinez and Ferguson 2022), it is crucial to know where agriculture debt is in our SAT states during these unusual times. This article covers the latest commercial bank reports from the U.S. commercial quarterly performance reports. As a refresher, these reports highlight agricultural loans and the loans’ status (on time or late). Figure 1 displays the total loan volume (yellow line) and total loan volume for all three late type volumes (30-89 days late, 90+ days late, Non-Accrual) for the last seven quarters. The totals are for all the Southern Ag Today States. 

Through the third quarter of 2022, non-accrual loans and 90+ days late have continued downward trends. Non-accrual loan volume continued to decrease and is down 65% from a year ago. While 90+ days late loans stayed relatively steady. A real positive sign is seen in the total debt volume for loans that are 30-89 days late. The total volume of debt in this category is down $4 billion compared to a year ago. These are positive signals that bad loan debt load hasn’t increased during this turbulent year. All three late and bad loan types continue to show signs of good debt health for the SAT states, and this is reinforced by the total loan volume being approximately unchanged from a year ago.   

As producers navigate through this environment, the current status of commercial ag debt appears healthy and even improving. In the coming months, it is essential that producers are mindful of their working capital, and they should continue the positive strategies that they have implemented thus far. 

References

Martinez, Charley, and Haylee Ferguson. “Current Non-Real Estate Farm Debt.” Southern Ag Today 2(30.3). July 20, 2022. Permalink

Martinez, Charley, and Haylee Ferguson. “Current Non-Real Estate Farm Debt.” Southern Ag Today 2(49.3). November 30, 2022. Permalink