Agricultural bankers and the industry they support are facing unique financial headwinds compared to the last few years — many of those issues come without much precedent, leaving ag and rural lending professionals looking for guidance. Among the presentations at the upcoming ABA Agricultural Bankers Conference in St. Louis, Missouri (Nov. 12-14) dedicated to providing insight and actional solutions for farmers, ranchers and their lenders, is a discussion led by Michael Fielding and Thomas Donaldson, partners with the law firm of Husch Blackwell LLP, where they advise clients on lending issues.
In their presentation, titled “The latest developments in distressed agricultural lending,” Fielding and Donaldson will cover agricultural lending disputes from the past year, to provide insight into common pitfalls, practical solutions to resolve disputes and best practices for managing risk in agricultural loans. The goal is to teach attendees actionable strategies to enhance their lending practices and more effectively mitigate risks.
The ABA Banking Journal recently chatted with Donaldson and Fielding to discuss the state of ag lending and to preview a few of the issues they’ll address in St. Louis.
ABA Banking Journal: What are some of the biggest ag lending obstacles in general and for specific agricultural sectors?
Fielding: The agriculture industry is struggling with margin compression that is experienced in different ways by different parts of the supply chain. Row-crop farmers, for instance, have seen input costs rise, especially since the onset of the COVID pandemic, but are still subject to year-to-year volatility in commodity prices. In lean years, the aggregate inflation in connection with inputs can tilt an operation into the red. Compounding this erosion in margins is an interest-rate environment that is very different than the pre-pandemic period. Debt loads that once seemed manageable have become burdensome as the cost of money has risen. Lenders, therefore, are providing credit to a marketplace with less cash flow, less liquidity and a smaller margin for error. Farm loan repayment rates have fallen to their lowest levels since 2016.
Donaldson: Elsewhere, the same dynamic is present but for different reasons. Equipment manufacturers and other agricultural suppliers have themselves been pinched by the rising cost of inputs, whether tariff-related and due to general price inflation. Many of these suppliers have chosen to absorb these costs rather than pass them through to the customers, but this approach has its limits. Should suppliers reach a tipping point where it becomes uneconomical to absorb rising input costs, the end user — farmers — will experience yet another round of rising costs. These developments are mostly credit-negative for the industry as a whole.
Banking Journal: Where are ag lenders struggling most? How will the next two to three years be different than the last three?
Donaldson: The last three years were dominated by the statistical anomalies associated with the post-COVID period — rising valuations in financial assets, including real estate; stabilizing interest rates, after a sharp rise; and dramatic twists and turns in consumer behavior. Interestingly, each of these areas was greatly impacted by massive federal deficit spending. The next three years will look very different, as those federal supports are reduced or reconfigured. We are already seeing some of this with the One Big Beautiful Bill Act, which contained several food/ag-related provisions. Lenders should expect a challenging environment where numerous federal policies — from the Farm Safety Net, to immigration policies, to interest rates — could have a material impact on the health of borrowers.
Banking Journal: With predictions that the ag economy is entering a downturn, where are the opportunities in ag lending?
Fielding: One of the biggest opportunities is the advantage of a little time — right now — to identify and remedy loan agreements. Lenders can develop and put into place the protocols needed to monitor borrower health and to understand where the real risk resides in a portfolio. Many lenders have no real professional experience with a protracted economic downturn or a financial crisis. They should take the time to learn how crisis dynamics work and how to model for them.
Banking Journal: What do you hope conference attendees take away most from your presentation?
Donaldson: To a certain extent, every loan — whether at the beginning or when hard times hit — is different. Although we can’t give them a one-size-fits-all approach for every situation they face, our presentation is designed to help empower them to more critically and thoughtfully analyze each loan so that they can make better decisions. Attendees will learn from the real-world mistakes and successes reflected in legal cases, and be given practical guidance about how they can best put that wisdom into action before any prospective crisis emerges.
