Farmers are feeling the pressure from the currently anemic agricultural economy. Nearly 90% of agricultural lenders have reported an overall decline in farm profitability this past year, according to a joint survey from the American Bankers Association and the Federal Agricultural Mortgage Corporation.
Among other things, the survey – comprised of responses from more than 350 agricultural lenders – revealed some common concerns lenders have about their farmer customers. They were asked to rate their concerns regarding various topics from low (1) to high (5). Here are their top concerns, ranked by percentage who answered with a 4 or 5.
1. Commodity prices (95%)
2. Liquidity (88%)
3. Farm income (88%)
4. Farm leverage (74%)
5. Land Rents (56%)
Jackson Takach, Farmer Mac’s in-house economist, adds that ag lenders are expecting greater demand for debt financing. Two-thirds of the survey respondents expect an increase in ag operating loan demand for the first half of 2017. And one-third of the lenders surveyed expect an increase in demand for ag real estate loans.
“These responses are consistent with agricultural credit down cycles,” he says. “Financing needs on the farm increase at the same time as profitability and short-term creditworthiness decreases. Fortunately, ag lenders are seasoned – most with long careers in agriculture – and they understand these cycles well.”
Regarding challenges among their own institutions, lenders say regulation, compliance and competition with non-banks rank as their top concerns.
The entire report is available here.