There is little question that China’s tariffs on U.S. soybeans will slow exports and crimp the profits of many farms, but how they affect the banks that lend to soybean farmers will depend largely on how long the trade war persists and how well bankers prepare customers for the inevitable slowdown.
If bankers begin taking steps now to refinance existing agricultural loans or help farmers sell their products in markets outside of China, then the damage to banks’ balance sheets should be minimal—at least in the short term, bankers and industry experts say.
But if their efforts fall short and farmers are unable to recoup what could be billions of dollars in lost export revenue, then banks could be looking at a costly rise in farm loan delinquencies. China's retaliation against President Donald Trump's 25 percent tariff on $34 billion worth of Chinese goods entering the U.S. has had an immediate impact on farm exports, with total lost soybean sales for 2018 at 2 million metric tons more than what was reported canceled through the same period last year.
The steep rise in cancellations comes at a time when farmers and the banks that lend to them are already grappling with a decline in commodity prices, said John Blanchfield, principal at Agricultural Banking Advisory Services. Farmers had already been struggling to meet loan payments and that problem may now worsen, said Keith Ahrendt, chief credit officer at the $11.9 billion-asset Bremer Bank in St. Paul, Minn.
Reduced revenue from soybean exports will also extend to farmers’ other financial decisions, Blanchfield said. They will likely delay making large capital expenditures, which will also hurt banks, particularly in such states as Illinois, Iowa, and Minnesota that are major soybean exporters.
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