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Farm Lending Takes a Nosedive as 2017 Dawns

New farm lending by agricultural banks is down sharply, says the Federal Reserve, suggesting “both lenders and borrowers may have been more apprehensive about adding new debt heading into 2017.” Origination of nonreal estate loans plunged by 40% in the final three months of 2016 in the largest year-over-year decline in nearly two decades, says the Fed.

Farm operating loans amount to 60% of nonreal estate lending, so “the decline in input expenses likely curbed the volume of new farm loans originated in the fourth quarter as farmers prepared for the 2017 planting season,” says the Fed’s Ag Finance Databook. Prices of seed, fertilizer, and feeder cattle, as well as land rental rates, are down, but so are land values and commodity prices since 2013. 

Bankers list 1.7% of farm loans as nonperforming, a modest but rising rate. Farmland values across the Midwest and Plains are falling due to prolonged financial stress in the sector; down by 20% in Kansas and down by 19% in Iowa. 

“Although this represents an annualized rate of only 5% to 8%, persistent and gradual declines could lead to further financial stress in the farm sector in coming years,” says the Federal Reserve. 

“If profit margins remain low through 2017, the pace of new debt will be a key indicator to monitor in assessing the severity of financial stress through the year,” the Federal Reserve says.

This article was produced in collaboration with the Food & Environment Reporting Network, an independent, nonprofit news organization producing investigative reporting on food, agriculture, and environmental health.

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