Agricultural lending by the nation’s farm banks dipped 1.8% to $98.6 billion in 2020 as demand for agricultural production loans declined slightly, according to the American Bankers Association’s annual Farm Bank Performance Report released today. Agricultural production loan demand declined 6.7% due to rising costs, supply and production bottlenecks, price volatility and an increase in federal cash payments, the report found. Government payments also enabled producers to pay down existing loan balances.
“American farm banks have remained healthy this past year and continued to play a critical role in supporting farmers and the broader U.S. economy through the turbulence of 2020,” said ABA Chief Economist Sayee Srinivasan. “While the agricultural sector will continue to face challenges as the economy reopens and recovers from the coronavirus pandemic, the strong asset quality and capital levels of America’s farm banks will help ensure that they continue to provide support to rural communities.”
Farm banks—defined by ABA as banks with ratios of domestic farm loans to total domestic loans greater than or equal to the industry average—also continued to build high-quality capital throughout 2020. Equity capital increased 9% to $52.6 billion, while Tier 1 capital increased by $3.6 billion to $48.3 billion.
The report also found that farm banks supported rural communities through the Paycheck Protection Program by holding 172,818 PPP loans worth $12.7 billion on their balance sheets at the end of 2020. Farm banks distributed these loans via more than 7,700 branches across rural America.