Loans

Farmers Ask for Less in Operating Loans in Q4 in Response to Strong Ag Economy

Good economic conditions in agriculture led to farmers asking for less in operating loans from commercial banks. (DTN file photo)
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“Higher costs are likely to put more pressure on credit demand, but strong agricultural income and working capital could supplement financing for some borrowers.”

The survey found that the number of new loans with small and medium-sized lenders “significantly increased”, while most of the decline in loan volume was among large lenders.

“The number of loans made by banks with smaller farm loan portfolios grew more than 35% over last year, but the average size of these loans was about 30% lower,” the KC Fed said.

“The decline in loan volume among the largest lenders was less pronounced, but those banks also made fewer loans and accounted for nearly all of the decline in total non-mortgage lending.”

The report said the higher number of loans and the size of smaller loans were consistent across lending types, but “farm operating loans” drove most of the decline in lending volume.

The report stated that “the sharp decline in the volume of operating loans was in contrast to the trend in recent years.”

“After several years of continuous increases and a record high for the fourth quarter of 2020, average operating loan volume has fallen to the lowest level for this time of year since 2016. The number of operating loans has remained low compared to previous years but increased from a historic low for the quarter. Fourth reached last year.”

In addition, the volume of loans over $100,000 is down approximately 20% from last year, while the volume of all other loans has increased by approximately 15%.

Regarding interest rates, the report said that the average interest rate on non-mortgage loans declined in the fourth quarter and remained at its lowest levels for the largest loans and for the largest agricultural banks.

“The average interest rate on loans above $100,000 remained about 140 basis points lower than rates on small loans and declined slightly more from the same period in 2019,” the report said.

Likewise, the average rate at the largest agricultural banks remained lower than other lenders and also decreased slightly from the same period in 2019.

Read the full report here: https://www.kansascityfed.org/….

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @DTNeeley

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