Ag Bankers Concerned About China, Inflation Reduction Act


The Rural Mainstreet Index for August dipped lower, dropping for the fifth-straight month. However, the August edition of the index also broached a couple of first-time topics with agricultural bankers. Dr. Ernie Goss, an economics professor with Creighton University, says Chinese ownership of American farmland and food processing plants is becoming a big concern.

“That’s right. We asked if there was a concern about the Chinese purchases of not just farmland but also food processing facilities. And they have been buyers of food processing in the U.S., they have been buyers of farmland, and nine out of ten reported concerns about it. Now, of those, a good one-fifth of the entire survey reported significant concerns about the Chinese purchase of farmland and food processing. So that’s an issue and something to keep an eye on going forward. And that’s, of course, an issue for the farmers, particularly as they’re seeing their land being sold, and the neighbors selling their land to Chinese investors.”

The Inflation Reduction Act signed into law is another concern for agricultural bankers. Some of the RMI survey respondents are worried that it may have the reverse effect.

“More than half said they expect it to increase inflation and add to the deficit, two things that it was supposed to address. And what the bankers see out there is, like most government programs, federal programs, that is, you get to spend increase, but the tax increases don’t become effective or they’re not effective. And also, the price limitations in terms of drug prices. This is coming from me now, I think when it comes down to it, we will not get those price limitations. In other words, we will continue to see prescription drug prices continue to grow. Again, we’ll get the price increases, and we’ll get the increase in the deficit because spending in there and, of course, that’s what the bankers see, as I see it too.”

Despite looming challenges, ag bankers say they expect farmer default rates on loans will stay low.

“They entered this downturn or slowdown in good cash positions. In other words, we’ve seen very good agricultural commodity prices even as input prices have grown, but the income of farmers is at a pretty good level, and, of course, they look out there, and we saw a decline of 1.7 percent. That’s the average estimate for bankers out there in terms of delinquencies. We asked the same question a couple of months ago, and there was much the same negative. In other words, they expected a decline in delinquencies of farm loans, and that’s good news. Loans are up, for that matter. We’ve seen pretty strong loan demand by the farmers, and, of course, we’re seeing that because the farmers are borrowing in anticipation of higher rates.”

Despite that bit of good news, bankers are still very worried about the future.

“We saw the bankers are still not very optimistic about the economy. They’re reporting that the economy is contracting slightly out there, the Rural Mainstreet economy, but they expect this downturn to continue, and they’re pretty pessimistic about that. Whether it’s in terms of higher interest rates, labor shortages, and overall, the global economy, there are some real concerns about the global economy for a region that’s dependent on exports. In other words, exports to China, to other parts of Asia, and, of course, Europe as well.”