Agricultural bankers report that farmers are significantly less profitable this year, especially in corn and other grains as well as in fruit and tree nuts, and delinquency rates are expected to begin rising.
Some 58% of farmers are expected to remain profitable this year, compared to 78% in 2023, according to an annual survey by the American Bankers Association. Lender expectations vary by crop, with livestock producers in significantly better shape than row crop growers.
Lenders expect the proportion of profitable borrowers to decline again next year to only 51% of borrowers, the same proportion as reported by lenders in 2020,” says a report on the survey released in conjunction with the ABA's ag bankers conference.
“Expected changes in farm profitability tend to look similar across regions. Lenders across all regions foresee fewer producers remaining profitable in 2024 relative to last year. … Among responses from the Plains, Corn Belt and South regions, lenders expect a 20% to 25% drop in profitable producers.”
Some 450 lenders responded to the survey that was conducted between July 22 and August 23.
The highest levels of concern in the survey were with grain producers. About 56% of respondents said they were very concerned or extremely concerned about farmers in that sector. A year ago, only 15% of lenders felt that way about the sector. Lender concerns about growers in fruits and tree nuts are growing as well, according to the survey.
Across the country, more than 77% of lenders reported farm debt increased over the past year, and 90% of lenders expected farm debts to grow over the coming year.
Lenders also “reported that ag loan delinquencies and charge-off rates remained stable in 2024. However, lenders expect credit quality to deteriorate over the next 12 months, as farmers may face a more challenging environment in the year,” the report said.
The profitability squeeze has been a major topic of the ag bankers meeting this year in Milwaukee. Economists at the University of Minnesota told the bankers that crop farmers across all states were expected to lose an average of $24,000 this year and $12,000 in 2025, compared to an average net income of $95,000 in 2023 and $381,000 in 2022.
“The state of the farm economy right now is just terrible,” the president of the American Farm Bureau Federation, Zippy Duvall, told the farmers. “It is terrible, from the natural disasters to low commodity prices, high input costs. I mean, y'all know it better than I do, because you're trying to look at their balance sheets … to figure out how you are going to help them get that operating loan.”
One bright spot in the ag economy is that many farmers borrowed for fixed-rate loans with low interest.
Jeff Wolfgram, senior vice president of South Dakota-based Dakota MAC, an agricultural real estate lender, said that coming out of the pandemic, 88% of that bank’s clients had fixed-rate low-interest loans. But he said farmers who took out adjustable-rate loans are now facing problems.
“Our clients are sitting great. Our bankers are ready. But obviously, I mean, it's going to be some turbulence out there,” he said.
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