Ag Banks Make Adjustments as Lending Remains Elevated
Demand for agricultural credit remained high and loan volumes continued to increase in the first quarter of 2019. To meet growing demand for financing, lenders, especially small, agricultural banks, increasingly have used loan participations and Farm Service Agency loan guarantees. Despite ongoing demand for farm loans and adjustments to lending portfolios, delinquency rates on farm loans have remained low. Interest rates on farm loans continued to rise, but farm real estate values remained relatively steady through the end of 2018.
Section A: First Quarter Survey of Terms of Lending to Farmers According to the National Survey of Terms of Lending to Farmers, non-real estate lending continued to increase at a moderate pace in the first quarter. The volume of non-real estate loans increased 9 percent from a year ago (Chart 1). Although the volume of loans to finance operating expenses remained relatively steady, volumes for livestock loans and loans to finance machinery and equipment increased. The increase in livestock lending likely was due, in part, to slightly higher prices for livestock. In addition, volumes for other loans increased notably due to an uptick in both the size and number of loans.
Alongside ongoing growth in demand for farm loans, a larger share of new loans has been originated with participation or syndication status. Although participations have been on a slight upward trend at all banks, they have risen significantly in recent years at small, agricultural banks (Chart 2). For example, in 2012, less than 10 percent of loans that were originated at small, agricultural banks were participated or syndicated to other institutions, compared with 40 percent of farm loan volumes that were participated or syndicated in the first quarter of 2019.
In addition, more loans at small, agricultural banks have been insured by the Farm Service Agency (FSA) or other government agencies. Although a relatively small share of new loan volumes was insured by FSA, small, agricultural banks in recent years have utilized loan insurance and guarantees more than other banks (Chart 3). Increased levels of loan guarantees and participations at small, agricultural banks relative to all banks could be an indication of elevated financial stress in the farm sector.......MUCH MORE
And a reminder from February 23:
Creighton U's Rural Mainstreet Index Falls for February: Almost Two-Thirds of Banks Raised Farm Loan Collateral Requirements
