Update 2-U.S. Banking Regulator Says Strains Growing in Farm Sector

(CNBC) – A U.S. banking regulator on Wednesday said more farmers fell behind on their loans early this year, a sign that international trade tensions could be weighing on a farm sector already beset by years of low commodity prices.

In a quarterly report on the health of U.S. banks, the Federal Deposit Insurance Corporation did not directly refer to the Trump administration’s trade war with China which began in 2018. But officials at the regulator noted some farm banks were reporting a deterioration in asset quality.

“We are seeing some emerging strain,” Diane Ellis, director of the insurance and research division at the Federal Deposit Insurance Corporation, said at a news briefing. “Mostly it affects our community banks in the middle of the country.”

Ellis said the strain had been building for years in the farm sector as commodity prices have fallen, and noted farm incomes were at half the levels they were six years ago.

She said the share of farm loans at community banks that were noncurrent – that is, at least 90 days past due or in non-accrual status – rose to 1.28% in the first quarter.

That was the highest noncurrent rate since the third quarter of 2011 for farm loans held by community banks.

Including loans more the 30 days past due, the delinquency rate for farm loans held by community banks was 2.19%, the highest since the first quarter of 2011, according to a Reuters review of the FDIC data released on Wednesday.

Commodity prices have been hurt over the past year by a U.S.-China trade spat that has sparked higher Chinese tariffs on U.S. agricultural exports.

China is a top buyer of U.S. soybeans, the nation’s most valuable agricultural export, and it has dramatically reduced its purchases.

Among all FDIC-insured banks, the share of agricultural loans at least 30 days past due or in non-accrual status rose to 2.39%, the highest rate since the first quarter of 2012.