Data and Information

Excel SpreadsheetNational Survey of Terms of Lending to Farmers Historical Data | Excel SpreadsheetNational Survey of Terms of Lending to Farmers Tables | txtAbout the National Survey of Terms of Lending to Farmers

Farm loan demand remained muted at commercial banks in the first quarter of 2021. A reduction in the volume of operating loans led to an overall decline in total non-real estate lending. Financing activity also declined more notably at banks with relatively large farm loan portfolios, while lending was more stable among small and mid-size lenders.

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. 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.

Despite some ongoing challenges for cattle producers, financial conditions in agriculture remained favorable alongside strength in other major agricultural commodity markets. The outlook for the sector in 2021 remained significantly improved from recent years, but rising input costs could also weigh on profit margins in the months ahead.

First Quarter National Survey of Terms of Lending to Farmers

Agricultural lending activity at commercial banks declined at a measured pace in the first quarter, according to the National Survey of Terms of Lending to Farmers. The total volume of non-real estate farm loans was about 10% less than a year ago, continuing a recent trend of reduced loan demand (Chart 1). Lending has tracked below the recent historical average on a rolling four quarter basis since the beginning of 2020 and declined at an average pace of about 4% over that time.

Chart 1: Volume of Total Non-Real Estate Farm Loans is a line graph showing the volume of non-real estate farm loans in billion 2021 dollars on a quarterly basis from Q1 2010 to Q1 2021. The graph also includes a line displaying the four-quarter moving average and the 10-year average. The volume in Q1 2021of about $80 billion was below the 10-year average of about $90 billion and the four-quarter average was about $85 billion.  Sources: Survey of Terms of Lending to Farmers and Federal Reserve Bank of Kansas City.

Reduced demand for loans to finance operating expenses drove the overall decline in non-real estate financing. Operating loans decreased by about $12 billion from a year ago, which represented nearly all of the drop in non-real estate farm lending (Chart 2). Large commercial banks also accounted for most of the decline from a year earlier. Loan volumes fell by nearly 14% at large banks, compared with a decrease of less than 1% at banks with smaller portfolios.

Chart 2: Annual Change in Loan Volume, First Quarter includes two individual charts. Left, By Loan Type is a clustered column chart showing the annual change in loan volume in billion dollars for all reported loan types (Total, Feeder Livestock, Other Livestock, Operating Expenses, Farm Machinery and Equipment and Other) for Q1 2018, 2019, 2020, and 2021. and Right, By Bank Size Type is a clustered column chart showing the annual change in loan volume in billion dollars for total non-real estate loans and the size of bank (Small or Mid-size and Large) for Q1 2018, 2019, 2020, and 2021. Note: “Small or Mid-size” includes banks that have portfolios with $25 million or less in farm loans. “Large” includes banks that have portfolios with more than $25 million in farm loans. Sources: Survey of Terms of Lending to Farmers and Federal Reserve Bank of Kansas City.

In addition to a contraction in new operating debt, bankers booked loans with historically long durations. 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 (Chart 3). With a decline of about 20% from a year ago, operating loan volume retreated to the average of the past ten years on a rolling four-quarter basis.

3.	Chart 3: Loans for Farm Operating Expenses includes two individual charts. Left, Loan Volume and Average Maturity, First Quarter is a line graph showing the volume in billion 2021 dollars (corresponding to the left axis) and average maturity  in months (corresponding to the right axis) for operating loans in the first quarter from 1980 to 2021. Right, Historical Volume shows the four-quarter moving average volumes of operating loans in billion 2021 dollars from 1980 to 2021 and also includes a line depicting the 10 year average.  Sources: Survey of Terms of Lending to Farmers and Federal Reserve Bank of Kansas City.

Small agricultural banks drove the expanded length of loan maturities and cut interest rates at a faster pace than larger lenders. The average maturity of all non-real estate loans made by small or mid-size banks increased by more than 3.5 months from a year ago and reached a historic high (Chart 4). In addition, the average interest rate on loans made by those same lenders declined at a faster pace than in previous quarters. [2]

Chart 4: Average Maturity and Interest Rates on Non-Real Estate Farm Loans by Bank Size includes two individual charts. Left, Average Loan Maturity, First Quarter shows the average maturity if months for non-real estate loans made by small or mid-size banks and large banks in the first quarter from 1980 to 2021. Right, Average Interest Rates shows the average interest rate on non-real estate loans at small or mid-size banks and large banks from 2010 to 2021.  Note: “Small or Mid-size” includes banks that have portfolios with $25 million or less in farm loans. “Large” includes banks that have portfolios with more than $25 million in farm loans. Sources: Survey of Terms of Lending to Farmers and Federal Reserve Bank of Kansas City.

Alongside ongoing challenges in the cattle sector related to limited profits and severe drought in some regions, the slowdown in financing for livestock in the first quarter was also notable. The volume of loans for feeder livestock decreased about 11% from a year ago and remained well below the average of the past ten years (Chart 5). There were a similar number of new feeder livestock loans compared with last year, however; the average size of those loans continued to decline.

Chart 5: Feeder Livestock Loans includes two individual charts. Left, Volume shows the four-quarter moving average volume of feeder livestock loans in billion 2021 dollars from 1980 to 2021 and also includes a line depicted the 10 year average. Right, Number and Average Loan Size shows the four-quarter moving average of the annual percent change in the number and average size of feeder livestock loans from 2015 to 2021.  Sources: Survey of Terms of Lending to Farmers and Federal Reserve Bank of Kansas City.

Endnotes

  1. 1

    Loans made as part of the Small Business Administration (SBA) Paycheck Protection Program (PPP) and reported by banks in the Survey of Terms of Lending to Farmers are excluded from all data calculations.

  2. 2

    “Small or Mid-size” includes banks that have portfolios with $25 million or less in farm loans. “Large” includes banks that have portfolios with more than $25 million in farm loans. Based on Call Report information as of December 31, 2020, the panel of banks participating in the Q1 2021 Survey of Terms of Lending was 45% “Small or mid-size” banks and 55% “Large” banks.

Authors

Nathan Kauffman

Vice President, Economist and Omaha Branch Executive

Nathan Kauffman is vice president and Omaha Branch executive with the Federal Reserve Bank of Kansas City. In his role as the Bank’s lead economist and representative in the stat…

Ty Kreitman

Assistant Economist

Ty Kreitman is an assistant economist in the Regional Affairs Department at the Omaha Branch of the Federal Reserve Bank of Kansas City. In this role, he primarily supports the F…