By Tyler Mondres
In 2024, export demand for U.S. agricultural goods waned as global inventories rebounded. This placed significant downward pressure on global commodity prices and, by extension, U.S. farm incomes. As of September 2024, the USDA projects net cash farm income will decline for the second consecutive year to $154 billion in 2024, a 7 percent annual decline. The projected decline in farm incomes contributed to a deterioration in lender sentiment, as measured by the joint ABA-Farmer Mac 2024 Agricultural Lenders Survey report, with many lenders expecting a more challenging year ahead for their borrowers.
For producers, lenders expressed concern about liquidity, farm income levels and inflationary pressures. For their own institutions, credit quality, lender competition and interest rate volatility topped lenders’ list of concerns.
The 2024 survey marked the fourth consecutive year that liquidity and farm income levels topped the list of concerns regarding producers. However, the margin between these two concerns and the next highest-ranked concern increased substantially in 2024, underscoring the theme of profit compression in the survey results. Concern for inflationary pressure remained in the top three, though overall concern levels dropped — likely due to a continued pullback in input prices.
The chief concern facing agricultural lenders is credit quality deterioration, up from the third-highest concern in 2023. Carryover crop from last year, low commodity prices, high costs of production and elevated rates are weighing on producers. As a result, lenders expect meaningful deterioration in loan performance through mid-2025. With expectations for weaker credit quality, lenders plan to tighten underwriting standards and loan terms for agricultural credit. Two out of five respondents plan to tighten underwriting criteria for loans secured by farmland over the next 12 months, and more than half plan to do the same for agricultural production loans.
Agricultural credit standards
Concern about interest rate volatility, which was the primary concern facing lenders in 2022 and 2023, was ranked third in 2024. Elevated rates are among the pressures currently facing agricultural producers and lenders alike. Given the heightened concern about credit quality, lenders remain laser-focused on interest rates. One respondent commented that farmers who failed to make a profit in 2024 will need to capitalize or carry over their losses: “Unless interest rates come down substantially, interest expense will jump and become an additional serious impediment to regaining profitability,” the lender said.
While respondents generally expected interest rates to decrease over the next 12 months, the survey closed prior to the September Federal Open Markets Committee meeting. There was greater uncertainty in August about the trajectory of rate cuts. The FOMC has since provided more clarity around the expected timeline and pace of cuts through the end of 2025.
Ag lenders will continue to work closely with their borrowers. Lenders have a deep understanding of the needs of farmers and ranchers because, in many cases, they are in the same business. Nearly half of respondents surveyed said that, in addition to lending, they also farm themselves . As one respondent remarked, while the sector is facing “turbulent times,” it is just a part of the cyclical nature of agricultural lending. “We’ve been there before and will be there again,” the lender said.
