Operating loans drive decline in ag lending

Ruben Onsu

With federal pandemic aid in their hands, farmers and ranchers borrowed far less money than usual from ag bankers during the opening months of this year for equipment, livestock, and operating expenses, according to a Federal Reserve survey of commercial lenders. “The volume of non-real-estate farm loans was about 10% […]

With federal pandemic aid in their hands, farmers and ranchers borrowed far less money than usual from ag bankers during the opening months of this year for equipment, livestock, and operating expenses, according to a Federal Reserve survey of commercial lenders. “The volume of non-real-estate farm loans was about 10% less than a year ago, continuing a recent trend of reduced loan demand,” said a Kansas City Fed summary of the data on Thursday.

“Reduced demand for loans to finance operating expenses drove the overall decline in non-real-estate farm lending. The amount of new operating debt declined to the lowest level for the first quarter since 2012, while the average maturity of those loans was the highest for any quarter on record.”

Producers held $79.6 billion in non-real-estate loans, including $44 billion in operating loans, during the first quarter, which covers the months of January, February, and March. “With a decline of about 20% from a year ago, operating loan volume retreated to the average of the past 10 years on a rolling four-quarter basis,” said the regional Fed.

“Factors specific to the pandemic in 2020 likely contributed to the reduced lending activity as the year progressed. Substantial government aid through various programs in 2020 provided financial support, which may have mitigated some producers’ financing needs toward the end of the year,” said the Kansas City Fed report, written by economists Nathan Kauffman and Ty Kreitman. “In addition, the Small Business Administration’s Paycheck Protection Program accounted for a sizable share of loans reported, and likely displaced a portion of typical financing needs for some borrowers.”

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