In the near term, the next two to three years, lenders reveal a great deal of uncertainty about their farm borrowers. This is particularly apparent in their estimates of the number of borrowers requiring significant restructuring and those planning to expand. It is generally agreed that approximately 40 percent of existing farm borrowers will not make significant changes over the next few years. Financial stress, in the eyes of Iowa's farm lenders, is considered to be the result of markets and marketing. Iowa's experience in the 1980s would suggest that financial problems in agriculture develop over a period of time.
Duration is key.
If prices remain relatively low over the next year or two, it will become increasingly difficult for lenders to continue to extend credit to financially stressed farm businesses. Further, the number of farms requiring major restructuring is expected to increase. If, on the other hand, prices increase sharply in the coming year, most lenders and their farm borrowers have sufficient financial strength to shake off the impact of the past year. In the coming year, lenders and borrowers must carefully monitor economic conditions as well as individual loan performance.