Amid Uncertainty, Lenders Remain Concerned About Agricultural Liquidity

WASHINGTON, DC – Lenders continue to be most concerned about the liquidity, income, and leverage of producers. Uncertainty regarding tariffs and trade, the weather, and the impacts of the COVID-19 pandemic and resulting economic downturn is close behind. While concern about the pandemic was lower than that for borrower financial strength, 87.4% of respondents noted that ag borrowers’ reliance on government payments in 2020 increased. Lenders reported a high percentage of ag customers inquiring about government programs like the USDA’s Coronavirus Food Assistance Program and Market Facilitation Program (CFAP/MFP, 68%) and the Small Business Administration’s Paycheck Protection Program (PPP, 58%). While over half of lenders reported that demand for ag production and ag real estate loans was flat over the last 6 months, a significant share reported increased demand (26.7% and 33.3%, respectively), and 82.2% said that overall farm debt increased over the past year. Survey respondents generally expect higher ag loan delinquency rates heading into 2021 for both production (59.9%) and ag real estate (46.7%), though a majority expect loan charge-off rates to stay about the same (61.5% and 70.4%, respectively). About one in five ag borrowers requested a loan modification in 2020 due to the pandemic and resulting economic downturn. In spite of the credit quality concerns, lenders still remain positive about approvals. Lenders reported an average agricultural loan application approval rate for new loans of 72.3% in the 12 months leading up to August 2020 and expect the approval rate for renewal requests to be close to 90% in the following 12 months. The annual ABA and Farmer Mac Agricultural Lender Survey report is a joint effort to provide a look at the agricultural economy and market forces from the unique perspective of ag lenders.
(SOURCE: All Ag News)