BILLINGSBURG, S.C. — Farmers are losing millions of dollars from loans because of rising interest rates on specialty agriculture loans.
And the Federal Reserve is worried.
The central bank on Tuesday announced that it is “very concerned” about the potential for loans that are tied to specialty agriculture, including those that have been approved for some time, to be “re-priced.”
It’s not yet clear whether the rate hikes will hurt the loans in the short-term, but they are likely to hurt borrowers who have been struggling to make ends meet in the current environment.
“In general, we are concerned about the prospects for lending to specialty farming,” the Fed said in a statement.
“The potential impact of these rate increases on lending to this sector could have a significant impact on the industry’s profitability in the future.”
The Fed has been warning for years about the risks to specialty farm loans, warning that borrowers who borrow them may lose their farm and be left to struggle to survive.
The latest warning came at the end of February, when the Fed also warned that specialty loans “will become less affordable and less accessible over time.”
The central banks statement came a week after President Donald Trump announced a series of regulatory changes to help protect farmers from a wave of specialty loan defaults.
The moves included lowering the maximum annual percentage rate on specialty loans, increasing the maximum loan term and increasing penalties for borrowers who default.
A report released by the USDA this week showed that a large number of farmers are losing money on their specialty loans.
The USDA said that specialty agriculture has seen the fastest growth in loan defaults in the past two years, reaching $2.6 billion in 2017 and $2 billion in 2018.
The problem is that the rate increases could force many farmers to default on their loans and lose out on the lucrative crop insurance payments that come with specialty agriculture.
Farmers who default could have to pay a penalty of $3,000 or $5,000, depending on the size of the farm.
The National Farmers Union said it is concerned about this potential change in the rules.
The federal farm bill, which President Donald J. Trump signed into law on March 8, sets a limit on the maximum rate of 10% for specialty agriculture loan borrowers.
But the government has not set a specific limit on specialty farming loans.
According to the USDA, some farmers may not even qualify for a specialty crop insurance payout because they have not established an established farm, farm structure or have not been paying their loans off in full.
The report also found that the total value of specialty agricultural loans dropped by $7 billion between 2018 and 2022.
It is unclear how many of these borrowers are in the process of defaulting.
The Agricultural Bankers Association said in its report that the average specialty agriculture debt was $1.2 million in 2017, down from $2 million last year.
It said it was concerned about how quickly the rate of default would increase.
“The rate of defaults and default risk are expected to be increasing as more specialty farmers are forced to take on additional risks in order to provide for their families,” the group said in the report.
Farmer advocacy group Farm Action Coalition said in March that more than 300 million loans are in default and that some farmers are in a “state of panic.”
The group said that the $3.2 billion crop insurance payment to specialty farmers fell by $4.4 billion in that year.
The group also noted that many of the crop insurance loans that were approved in the last few years are now at risk because farmers have taken on higher risks.
Farm Action Coalition president and CEO Robert St. Clair said in his statement that the increase in default rates in the specialty agriculture sector has led to the loss of thousands of farm jobs and a loss of $4 billion to $6 billion of crop insurance income.
“Unfortunately, these crop insurance rates have now become the norm,” he said.
“Farmers are now taking on more risky lending practices, with a growing risk that the crop will fail and they will not receive the crop.”