Farm Lending Pullback Continues

Agricultural debt at commercial banks eased further at the end of 2020, and loan repayment problems moderated slightly. According to the Kansas City Federal Reserve Bank, general improvement in the farm economy likely drove the pullback in farm lending activity and strengthened credit conditions. Higher crop prices and an influx of government payments in 2020 also contributed to stronger growth in deposits, which supported a sharp increase in liquidity at agricultural banks.

Agricultural loan balances at commercial banks reached a five-year low in the fourth quarter and continued to shift toward farm real estate. Although the accumulation of farm debt remained higher than the average of the past ten years, the total value of farm loan portfolios fell 5% year over year.

Moving forward, the research says the pace of lending to farmers may remain slower than in previous years, as 2020 government payments and recent strength in crop prices have improved borrower liquidity and farm balance sheets.

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