Despite Tough Agricultural Conditions, Lenders Expect Borrowing Expansion

WASHINGTON, DC – As the farm economy continues to work through a prolonged downturn in the midst of an unparalleled, global economic dislocation, ag lenders remain focused on credit quality, according to the Fall 2020 Agricultural Lender Survey report produced jointly by the American Bankers Association and the Federal Agricultural Mortgage Corporation, more commonly known as Farmer Mac. When it comes to their customers, lenders continue to be most concerned about liquidity, income, and leverage. Uncertainty regarding tariffs and trade, the weather, and the impacts of COVID-19 and the resulting economic downturn is close behind. The agricultural economy and farm income remained stressed in 2020. On average, lenders reported that only 51 percent of their agricultural borrowers were profitable in 2020, down from 57 percent in 2019. About half of the lenders surveyed did not expect borrower profitability to improve in 2021 at the time of this survey. Respondents expressed the most concern for the grain, dairy, and cattle sectors. Many institutions reported modifying ag borrower loans due to either the coronavirus or the resulting economic turbulence. Despite the uncertainty, 31 percent of lenders expect borrowers to make investments in agricultural technology within the next two years. The survey results indicated some regional differences: almost half of lenders in the South expected farm technology investments to increase through 2020, while less than 30 percent of lenders from Cornbelt and Plains states said the same. Producers are also asking their lenders about funding to develop alternative sources of income or to implement cost mitigation. More than four in ten lenders have received inquiries from their borrowers about financing hemp production and just over one-third said borrowers are asking about financing for renewable energy projects.
(SOURCE: All Ag News)