With the farm economy in the midst of a prolonged downturn, the primary concern among ag lenders in 2019 was credit quality and the deterioration of agricultural loans, according to the latest agricultural lenders survey conducted by the American Bankers Association and Farmer Mac. Respondents said they were also concerned about lender competition—particularly from the Farm Credit System, which 73.5% named as their primary competitor—weakening loan demand and a shrinking market due to farm consolidation.
“Bankers are naturally concerned for their farmers and ranchers as the ag economy continues to regain its footing,” said ABA Chief Economist James Chessen. “Bankers know the cycles of agriculture very well and will continue to work side-by-side with their customers as they have done in the past. While uncertainty has risen, banks are well prepared to continue their support for the ag community through these challenging times.”
Farm profitability remained stressed in 2019, and the majority of ag lenders—82.5%—reported declines in farm profitability this year, with declines extending across all reporting regions. The approval rate for ag loans was 75.1%, and survey respondents said they expect the approval rate for renewal requests to be close to 90% in the year ahead.
While more than half of ag lenders report that demand for agricultural production loans held steady over the last 12 months, 45.3% of lenders with assets between $50 million and $250 million reported increased demand. Nearly of half of lenders said they expect land values to decline in 2020, and noted that an average of 37.8% of land in their markets are above market value.