The share of federal agricultural loans with overdue payments is falling for farmers across racial and ethnic groups, though whether that’s a temporary improvement remains to be seen.
A Center for Public Integrity analysis of a sliver of data from the U.S. Department of Agriculture shows the delinquency rate drop was particularly large for Black and Hispanic borrowers.
The decline could be due to a number of factors, and follows a broader trend of declining loan delinquencies. Recent declines among USDA borrowers may be due to federal pandemic aid, the strong farm economy that followed and financial assistance to distressed borrowers with USDA loans among other factors.
Loans provide cash flow that helps farmers weather seasonal changes and volatile markets. When cash flow is low, it is difficult for the farmer to meet their loan obligations and make a scheduled payment on their loans.
As a result, loans become delinquent. And loan delinquency is a key indicator of a farmer’s economic health. The loan delinquency rate is the percentage of loans whose payments are overdue.
The well-being of Black farmers has been closely tied over the years to the USDA, the government’s lender of last resort for farmers. The department provides farm subsidies as well as direct and federally guaranteed loans. Those loans and benefits are often more critical to Black farmers than they are to their white counterparts, in part because of the country’s massive racial wealth gap.
In one lawsuit after another, Black farmer advocates have argued that systemic racism in the USDA has prevented them from getting their share of loans, hampered the administration of those loans, added to their cash flow problems and hurt their economic stability and even their survival.
One indicator has been that Black farmers hold a disproportionate portion of USDA loan balances that are delinquent, despite holding a smaller share of overall loans when compared to other groups. That’s because their delinquency rates are significantly higher than other groups.
That gap appears to be shrinking.
From October 2022 through July 2023, the first 10 months of the fiscal year, loan delinquency — the share of outstanding principal and interest that is overdue for payment — declined 71% for Black farmers, compared with 44% for white farmers.
Only once did year-over-year changes for Black and white farmers exceed the single digits in fiscal years 2015-2021, the extent of the data USDA provided in response to Public Integrity’s Freedom of Information Act request.
Hispanic farmers saw similar improvements: Their delinquency rate fell by 70% from October 2022 to July 2023. Non-Hispanic farmers’ delinquency rate dropped 45%.
Ernie Goss, director of the Institute for Economic Inquiry and a professor of economics at Creighton University Heider College of Business, said the decline in the delinquency rate for Black borrowers was “significant and larger than usual.”
When asked whether the fall in loan delinquencies was simply a matter of bad loans being taken off the books, Goss said that could be a factor. Another possible factor, he said: less demand for loans because of strong farm commodity prices and the federal government’s financial support during the pandemic.
The data show that most racial and ethnic groups experienced a drop in the number of loans — among Black borrowers, loans fell by 20%.
“To some degree, there's less of a need for borrowing, and that's true for minority farmers and nonminority farmers,” Goss said. “So in other words, their loan demands have not been as great over the last several years because of support from the federal government and of course other factors.”
The USDA used different definitions for racial and ethnic groups in data provided from fiscal years 2015 through 2021, on one hand, and October 2022 through July 2023, on the other. Spotty and inconsistent USDA data has for decades bedeviled efforts to understand how well the agency serves farmers of all races.
The changing definitions in the loan data means it’s not possible to compare the delinquency rate for Black borrowers in 2021 and 2022. However, we can compare year-over-year changes from 2015 through 2021 to year-over-year changes from 2022 to 2023.
Overall, farm income is critical to farmers’ ability to generate cash flow from one season to the next, and that includes making loan payments. During the pandemic, the federal government authorized special financial assistance for farmers, including money that effectively helped to keep commodity prices higher than they may otherwise have been.
Then the Farm Service Agency, the arm of the USDA that manages loans, began distributing Inflation Reduction Act payments to farmers in October 2022. As of this month, the department had distributed $1.6 billion, just over half of the total authorized, to more than 27,000 borrowers, according to a USDA spokesperson. That assistance includes helping to pay past-due debt amounts and the next installment of loan payments for eligible borrowers deemed economically distressed.
The Inflation Reduction Act program alongside improvements to the farm lending process, such as providing more flexibility in how loans are structured, has contributed to the decline in the number of delinquent loans and the loan delinquency rate among farm loan borrowers, a USDA spokesperson said.
“USDA is hard at work to provide our most vulnerable producers the opportunity to generate long-term stability and success," the spokesperson said. "Our goal is to make sure we provide producers access to the tools they need to help get back to a financially viable path and ultimately succeed as thriving agricultural businesses."
John Boyd, president of the National Black Farmers Association, said the fall in delinquency rates was not necessarily good news.
“A whole lot of the rates are going to go down because we’re not getting the loans,” said Boyd, whose organization has received funding from USDA to connect Black farmers to the department’s programs and services. “We got to find a way to get more Black farmers into the USDA system.”
The forecast for farmers suggests clouds on the horizon. Goss, who produces the “Rural Mainstreet Index,” a monthly Creighton University survey of rural bankers in 10 Midwestern and Plains states, said the farm economy is slowing down.
Commodity prices are level or declining. Interest rates are rising. Rural lenders have tightened credit availability.
Loan delinquencies aren’t going up — yet. But the factors that helped push them down are fading.
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