Ag Lending Update: Fewer New Loans to Farmers

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Fewer new loans to farmers continued to drive a pullback in agricultural lending activity. A historically low number of new loans contributed to an increase in average loan size and drove a slight decrease in the overall volume of non-real estate loans at commercial banks in the fourth quarter. Stronger prices for agricultural commodities, alongside continued support from government payments, may have reduced financing needs for some farmers and contributed to the slower pace of lending.

Fourth Quarter National Survey of Terms of Lending to Farmers

Lending activity at commercial banks continued to slow in the fourth quarter, according to the National Survey of Terms of Lending to Farmers. The volume of total non-real estate farm loans declined by about 1% from a year ago, but remained slightly above the 10-year average in the fourth quarter (Chart 1). Farm lending declined at an average pace of 2% throughout 2020, following an average decline of nearly 5% in 2019 and an average increase of more than 12% in 2018.

Smaller loan volumes were driven by a lower number of new loans to farmers. While the number of loans continued to trend downward, the average size of farm loans grew for the second consecutive quarter (Chart 2). The number of new bookings with balances of less than $100,000 decreased by about 30% from a year ago and accounted for nearly 90% of the overall decline. The number of notes greater than $100,000 also dropped by about 18% and together with a record low number of loans overall, the average size of all new non-real estate loans reached a historic high.

Read more at Federal Reserve Bank of Kansas City

Featured image courtesy of Federal Reserve Bank of Kansas City

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