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Farm lenders expect only 58% of their borrowers to remain profitable this year, down from 78% in 2023, raising the specter of rising loan losses.

THE 2024 Agricultural Lender Survey Reportproduced jointly by the American Bankers Association and the Federal Agricultural Mortgage Corp., also known as Farmer Mac, said the results reflected an increase in global agricultural supplies that has depressed commodity prices and threatened the both farm income and land values ​​in the United States. A majority of lenders expect land values ​​and cash rents to stabilize or decline.

The report found that profitability expectations varied by region and major commodity types, with livestock producers more optimistic than crop producers.

“THE the agricultural economy is inherently cyclical“, and farm lenders are adapting to changing conditions in the industries they serve,” Jackson Takach, Farmer Mac’s chief economist, said Thursday in presenting the findings at the ABA Farm Bankers Conference in Milwaukee .

A drop in farm income this year would continue a downward trend. In 2024, the U.S. Department of Agriculture estimated net farm income at $140 billion, a 4% decline from 2023. This figure was 15% higher than the 20-year average but 28% lower than the record 2022. Farmers collectively earned $185.5 billion in 2022 amid a global surge in demand at the start of Russia’s invasion of Ukraine and resulting supply disruptions in Europe.

The main concern for agricultural banks was loan losses. Competition between lenders and interest rate volatility were the second and third biggest concerns overall, respectively, according to the ABA and Farmer Mac report.

“Agricultural credit quality remained robust in 2024, but lenders expect deterioration in the coming year as farmers face a more challenging environment,” said Tyler Mondres, senior director of research at the ABA . “Lenders are taking prudent steps to manage risks, such as tightening underwriting standards. »

There are more than 1,400 lenders specializing in agricultural loans, most of them community banks.

In 2023, 98% of agricultural banks were profitable, with 53.5% reporting an increase in profits, according to the ABA. As a result of historically low delinquency rates, the median non-current rate for agricultural banks – based on loans 90 days or more delinquent and non-accrual loans – increased slightly by just 3 basis points from the previous year to reach 0.23%. The non-current loan ratio for the entire banking sector was 0.27%.

Agricultural bankers said in another survey that their clients’ confidence was steadily declining.

For a 14th consecutive month, Creighton University’s Rural Mainstreet Index fell well below neutral growth. The October poll of bank CEOs in rural areas of a region of 10 agriculture-dependent states returned a result of 35.2, up from 37.5 in September. This is the lowest figure since the start of the pandemic in spring 2020. The index ranges from 0 to 100, with a figure of 50 representing neutral growth.

“Weak agricultural commodity prices, falling farm equipment sales, rising input costs and falling farmland prices” were all catalysts for the crisis, said economist Ernie Goss. of Creighton who is overseeing the investigation.

Goss’ poll found that 61.5 percent of bankers indicated that the financial situation of farmers in their service areas had deteriorated over the past six months. The remaining 38.5% said the financial situation of farmers was unchanged.

Corn futures prices have recently hovered around $4.30 a bushel, far from the 2022 level of $6 or more. Soybean prices have fallen similarly, according to data provider DTN.

“Even with above-average corn and soybean yields, most local agricultural producers will continue to generate cash at below-break-even prices,” said Jeff Bonnett, president and CEO of Havana National Bank , with assets of $300 million, in Illinois.