Repayment rates for farm loans have declined every quarter since the second quarter of 2013, suggesting heightened stress in agricultural lending. If repayment rates continue to decline—and the outlook for the agricultural sector remains downbeat—agricultural banks could become less able to lend to creditworthy farm borrowers. Thus, declining repayment rates could lead to adverse outcomes for agricultural banks, farmers, and the rural economies they serve.
Cortney Cowley uses data from the Federal Reserve Bank of Kansas City’s Ag Credit Survey to model and map areas with the highest probability of stress in agricultural lending. She finds that the largest increase in stress over the past decade occurred in 2016. She also finds that lower crop revenues, lower off-farm income, lower farmland values, lower concentrations of farm earnings, and higher interest rates are associated with higher stress in agricultural lending.
Publication information: 3rd Quarter 2018