Ag Lender Survey: Farm Profitability Expected to Decline in 2024

MILWAUKEE -

Agricultural lenders expect only 58% of borrowers will remain profitable this year compared to 78% last year, according to the 2024 Ag Lender Survey report produced jointly by the American Bankers Association and the Federal Agricultural Mortgage Corporation, more commonly known as Farmer Mac (NYSE: AGM and AGM.A). The combination of lower export demand for U.S. agricultural goods and the rebound of global inventories has put significant downward pressure on global commodity prices and U.S. farm incomes, according to the report released today at the ABA Agricultural Bankers Conference in Milwaukee. However, profitability expectations varied by region and major commodity types, with livestock producers garnering more optimism from lenders than crop growers.

"The agricultural economy is inherently cyclical, and ag lenders are navigating the changing conditions across the sectors they serve," said Jackson Takach, chief economist of Farmer Mac. "While the responses highlight slowing land values and a profitability shift from crops toward animal proteins, ag lenders remain steadfast in leveraging their resources and relationships to guide producers through all parts of the cycle."

"Agricultural credit quality remained robust in 2024, but lenders expect deterioration in the coming year as farmers face a more challenging environment," said Tyler Mondres, senior director of research at the American Bankers Association. "Lenders are taking prudent steps to manage risk such as tightening underwriting standards, and they remain committed to working with and supporting their borrowers."

Now in its ninth year, the annual survey provides unique insight from the perspective of agricultural lenders with specialized knowledge of their local farm economy and covers expectations on land values, prospects for the coming year and issues facing the broader economy. Responses from more than 450 ag lenders represent a range of institutions by size-from less than $50 million in assets to more than $1 billion-and by geography.

Key findings from this year's survey report include:

Profitability expectations

Ag lenders acknowledged a broad pullback in farm profitability in the 2024 survey, responding that only 58% of borrowers will remain profitable this year, relative to 78% last year. However, expectations varied by region and major commodity types, with livestock producers garnering more optimism from lenders than crop growers.

Land value and cash rent expectations

Farmland values continued to rise in 2024, albeit at a slower pace than in previous years. However, regional differences abound, and headwinds have grown in many areas. As a result, most lenders expect land values and cash rents may plateau or decline over the next year.

Top lender concerns for producers

Unsurprisingly, liquidity and farm income remained atop the list of lender concerns for producers. Meanwhile, lenders expressed less concern this year about inflation, weather and many other factors affecting producers.

Top overall concerns for lenders

The No. 1 concern facing lending institutions in 2024 was credit quality and agricultural loan deterioration. Lender competition and interest rate volatility were the second and third greatest overall concerns, respectively.

Sector concerns

Concern levels spiked in 2024 for several sectors, including grains, fruits and tree nuts. On the other hand, concern levels dropped for dairy, beef and poultry. The changes largely reflect how the farm income outlook has shifted within each sector over the past year.

Loan demand

According to the diffusion index, demand for loans secured by farmland and agricultural production loans increased in 2024. Respondents anticipate that loan demand for both categories will continue to increase over the next 12 months.

Credit quality

Survey respondents reported that ag loan delinquencies and charge-off rates remained stable in 2024. However, lenders expect credit quality to deteriorate over the next 12 months, as farmers may face a more challenging environment in the year ahead. As a result, a higher share of lenders plan to tighten underwriting standards and loan terms for agricultural credit.

Approval rate

Lenders reported an average agricultural loan application approval rate of 86% for new loans in the 12 months leading up to August 2024 and expect the approval rate for renewal requests to be 88% in the following 12 months.

Interest Rate Environment

Rate cuts would be beneficial for lenders that are more liability-sensitive, as funding costs come down. Lower rates would also reduce unrealized losses on the balance sheet. It is less clear, though, whether rate cuts will be a net benefit for lenders with large variable rate loan portfolios that are more sensitive on the asset side of the balance sheet. For agricultural borrowers, rate cuts could help alleviate some of the pressures weighing on farm profitability. Unsurprisingly, interest rate volatility remained among the top three concerns facing lenders this year.

About the Survey

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. The survey was distributed via email between July 22 and Aug. 23, 2024. More than 450 loan officers, managers, and executives responded to the questionnaire. Responses represent a range of institutions by size and by geography. The report breaks down results by general agricultural economic insights and by factors affecting lending institutions.

ABA and Farmer Mac have been working together for more than a decade to offer the financial and educational tools bankers need to serve their agricultural customers.

To view the full Agricultural Lender Survey Report, please visit aba.com/agsurvey.

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About the American Bankers Association

The American Bankers Association is the voice of the nation's $23.9 trillion banking industry, which is composed of small, regional and large banks that together employ approximately 2.1 million people, safeguard $18.8 trillion in deposits and extend $12.5 trillion in loans.

About Farmer Mac

Farmer Mac is a vital part of the agricultural credit markets and was created to increase access to and reduce the cost of credit for the benefit of American agricultural and rural communities. As the nation's secondary market for agricultural credit, Farmer Mac provides financial solutions to a broad spectrum of the agricultural community, including agricultural lenders, agribusinesses, and other institutions that can benefit from access to flexible, low-cost financing and risk management tools. Farmer Mac's customers benefit from its low cost of funds, low overhead costs, and high operational efficiency. More information about Farmer Mac is available on Farmer Mac's website at www.farmermac.com.

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