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Farm debt at commercial banks continued to ease in the second quarter. Agricultural loans balances decreased by 5% from the previous year due to a relatively large decline in production loans. Although farm lending increased at some banks, loan balances dropped by more than 10% from a year ago at a relatively large number of banks. Declines were most substantial among lenders with both the smallest and largest farm loan portfolios and among agricultural banks with high concentrations of farm loans.

The U.S. agricultural economy remained strong through the first half of the year and farm income was projected to reach an eight-year high in 2021. The quick recovery in farm finances from weakness in recent years has contributed to reduced levels of debt at commercial banks and is likely to continue supporting improvements in agricultural loan performance. In addition to stronger farm income and credit conditions, interest rates have remained at historic lows, providing ongoing support to farmland markets.

Second Quarter Commercial Bank Call Report Data

Farm loan balances at commercial banks continued to decline through the first half of the year according to recent Call Report data. Total farm debt decreased toward the historic average on a rolling four quarter basis in real dollar terms and the stabilization has mostly been driven by a pullback in production loans (Chart 1). As of the second quarter, farm real estate debt remained about 8% above the average of the past decade while non-real estate debt was about 13% less than the average over that same period.

Chart 1: Farm Debt Outstanding at Commercial Banks - is a line graph showing the amount of outstanding real estate and non-real estate farm debt in billion 2021 dollars on a rolling four quarter basis in every quarter from Q1 1980 to Q2 2021. It also includes lines showing the 10-year average for both real estate and non-real estate farm loans.   Sources: Reports of Condition and Income and Federal Reserve Board of Governors.

Farm debt declined at a large number of banks, but decreases in real estate debt were less prevalent than declines in non-real estate debt. Production loans were less than a year ago at about 70% of non-agricultural banks and nearly 80% of agricultural banks in the second quarter (Chart 2). In contrast, farm real estate debt was less than a year ago at about 60% of non-agricultural banks and only about 50% of agricultural banks.

Chart 2: Share of Banks by Year-Over-Year Change in Farm Debt – is a line graph showing the percent of agricultural and non-agricultural banks with a year-over-year decrease in farm debt in every quarter from Q1 2010 to Q2 2021. It includes lines for real estate and non-real estate farm loans.   Note: Shares are calculating using only banks reporting balances of applicable loan types in each quarter. Agricultural Banks include all banks with farm loans comprising at least 25% of total loans.  Sources: Reports of Condition and Income and Federal Reserve Board of Governors.

The share of banks with significant declines in outstanding farm debt was also notable. Nearly 40% of non-agricultural banks and 30% of agricultural banks had farm loan balances fall 10% or more from a year ago (Chart 3). While farm debt was lower at the majority of banks, a sizeable share of banks also had an increase of more than 10%.

Chart 3: Share of Banks by Year-Over-Year Change in Farm Debt, Q2 2021 – is a clustered column chart showing the percent of banks in Q2 2021 that had varying levels of year-over-year changes in farm debt. There are columns for All Commercial Banks, Agricultural Banks and Non-Agricultural Banks and the levels of change include More than 20% Decline, 10-20% Decline, 0-10% Decline, 0-10% Increase, 10-20% increase and More than 20% Increase.   Note: Shares are calculated using only banks reporting balances of applicable loan types in each quarter. Agricultural Banks include all banks with farm loans comprising at least 25% of total loans.  Source: Reports of Condition and Income and Federal Reserve Board of Governors.

Lenders with the smallest and largest agricultural loan portfolios had the sharpest decrease in farm loan balances. Farm debt declined by more than 5% among banks with farm loan portfolios less than $25 million and more than $500 million (Chart 4). The decline was comparatively less for lenders with mid-sized portfolios.

Chart 4: Farm Debt by Bank Size*, Q2 2021 - is a clustered column chart showing the percent change in farm debt from a year ago for groups of banks with varying levels of farm loan portfolio size. There are columns for Agricultural Banks and Non-Agricultural Banks and the size categories include Less than 25 million, 25-50 million, 50-100 million, 100-500 million, and More than 500 million.   *Size of farm loan portfolio as of Q2 2021.   Note: Changes are based on sum of total ag loans at banks within each category during current and previous period. Agricultural Banks include all banks with farm loans comprising at least 25% of total loans.  Source: Reports of Condition and Income and Federal Reserve Board of Governors.

Decreases in farm debt were slightly greater at agricultural banks with relatively high concentrations of agricultural loans. In total, farm loan balances decreased only about 2% from a year ago at banks where agricultural loans comprised less than 40% of all loans. In contrast, farm loan balances dropped by more than 4% at banks with a larger concentration of agricultural loans (Chart 5). Across all groupings of farm loan concentration, the decrease in farm debt was driven by lower balances of non-real estate loans.

Chart 5: Change in Farm Debt At Agricultural Banks by Farm Loan Ratio*, Q2 2021 - is a clustered column chart showing the percent change in farm debt from a year ago at groups of agricultural banks with varying levels of farm loan ratios*. There are columns for Total, Real Estate and Non-Real Estate and the categories includes 25-30%, 30-40%, 40-50%, 50-60% and More than 60%.   *Ratio of agricultural loans-to-total loans as of Q2 2021.   Note: Changes are based on sum of total ag loans at banks within each category during current and previous period. Agricultural Banks include all banks with farm loans comprising at least 25% of total loans.  Sources: Reports of Condition and Income and Federal Reserve Board of Governors.

Alongside reduced agricultural debt and External Linkstronger farm finances, loan performance also continued to improve. Delinquency rates on both real estate and non-real estate farm loans were about 80 and 70 basis points less than a year ago, respectively (Chart 6). Similar to recent years, delinquency rates remained slightly lower at agricultural banks than other lenders.

Chart 6: Farm Loan Delinquency Rate, Q2 – is a line graph showing the delinquency rate on farm loans at agricultural and non-agricultural banks in the second quarter of every year from 2010 to 2021. It includes lines for real estate and non-real estate farm loans.  Note: Delinquent farm loans include all agricultural loans past due 30 or more days or non-accruing. Agricultural Banks include all banks with farm loans comprising at least 25% of total loans.  Source: Reports of Condition and Income and Federal Reserve Board of Governors.

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…