Agricultural lenders expect only 58% of borrowers will remain profitable this year compared to 78% last year, according to the 2024 Ag Lender Survey produced jointly by the American Bankers Association and Farmer Mac. The survey was released during the second day of ABA’s Agricultural Bankers Conference in Milwaukee.
The combination of lower export demand for U.S. agricultural goods and the rebound of global inventories has put significant downward pressure on global commodity prices and U.S. farm incomes, according to the report. However, profitability expectations varied by region and major commodity types, with livestock producers garnering more optimism from lenders than crop growers.
“Agricultural credit quality remained robust in 2024, but lenders expect deterioration in the coming year as farmers face a more challenging environment,” said Tyler Mondres, senior director of research at ABA. “Lenders are taking prudent steps to manage risk such as tightening underwriting standards, and they remain committed to working with and supporting their borrowers.”
Among the survey’s findings:
- Farmland values continued to rise in 2024, albeit at a slower pace than in previous years. However, regional differences abound, and headwinds have grown in many areas. As a result, most lenders expect land values and cash rents may plateau or decline over the next year
- Liquidity and farm income remained atop the list of lender concerns for producers. Meanwhile, lenders expressed less concern this year about inflation, weather and many other factors affecting producers.
- The top concern facing lending institutions in 2024 was credit quality and agricultural loan deterioration. Lender competition and interest rate volatility were the second and third greatest overall concerns, respectively.
- Concern levels spiked in 2024 for several sectors, including grains, fruits and tree nuts. On the other hand, concern levels dropped for dairy, beef and poultry. The changes largely reflect how the farm income outlook has shifted within each sector over the past year.
- According to the diffusion index, demand for loans secured by farmland and agricultural production loans increased in 2024. Respondents anticipate that loan demand for both categories will continue to increase over the next 12 months.
- Survey respondents reported that ag loan delinquencies and charge-off rates remained stable in 2024. However, lenders expect credit quality to deteriorate over the next 12 months, as farmers may face a more challenging environment in the year ahead. As a result, a higher share of lenders plan to tighten underwriting standards and loan terms for agricultural credit.
- Lenders reported an average agricultural loan application approval rate of 86% for new loans in the 12 months leading up to August 2024 and expect the approval rate for renewal requests to be 88% in the following 12 months.
- Rate cuts would be beneficial for lenders that are more liability-sensitive, as funding costs come down. Lower rates would also reduce unrealized losses on the balance sheet. It is less clear, though, whether rate cuts will be a net benefit for lenders with large variable rate loan portfolios that are more sensitive on the asset side of the balance sheet. For agricultural borrowers, rate cuts could help alleviate some of the pressures weighing on farm profitability.
