The Kansas City Federal Reserve’s latest Ag Finance Update showed farm debt has risen, but delinquencies are low. Details:
Farm operating debt at commercial banks has seen a significant increase:
- Non-real estate farm debt grew by approximately 10% compared to the previous year during the second quarter of 2024.
- The increase was even more pronounced at agricultural banks, where non-real estate debt rose by about 15% year-over-year.
- Real estate farm debt also increased, though at a slower pace - about 2% overall and 6% at agricultural banks.
This rise in farm debt is attributed to several factors, including a softening agricultural economy, lower farm sector liquidity and higher financing needs among farmers.
While debt has increased, credit conditions have shown signs of tightening: The loan-to-deposit ratio for farm lenders reached its highest level since 2020; Agricultural bank liquidity has declined from record levels; There’s increased competition for deposits, leading to greater use of alternative funding sources at community banks.
Despite the rise in debt, delinquency rates on farm loans remain low. About 1% of real estate and non-real estate farm loans were past due by at least 30 days in the second quarter, representing a slight increase from record low levels a year ago. Approximately half of the increase was due to newly delinquent loans past due 30 to 89 days.
While the increase in farm debt is significant, there are some positive indicators: Capital levels at agricultural banks have improved slightly; USDA projects only a small increase in the bankruptcy rate among farmers this year compared to last year, with 2022 and 2023 having record low levels.
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