Ag Banks Trim Farm Lending

Farm loans outstanding at commercial banks declined in the third quarter and non-performing loans edged slightly higher. The Kansas City Federal Reserve said reduced lending at agricultural banks contributed most significantly to the further decline in outstanding loan balances. Alongside lower farm debt levels, delinquency rates on agricultural loans continued to trend higher at a gradual pace.

Most of the recent decrease was driven by non-real estate loans, which were nearly 5% less than the previous year, the largest drop in more than 15 years. Farmland loans also decreased for the second consecutive quarter and at a faster pace than the previous quarter. The combined pullback in both loan types led to the largest decline in overall farm debt in any quarter since the late 1980s.

Although the overall rate of non-performing farm loans increased, loan quality remained higher at agricultural banks. Difficulties related to the COVID-19 pandemic continued to weigh on farm lending and loan performance, but government programs also may have offset some borrowing needs and supported financial conditions for farmers.

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