Farm Lending Update: Volume Increases for Larger Farm Operating Loans

For the first time in at least 20 years, the volume is greater for loans larger than $1 million versus loans less than $1 million.

According to the Federal Reserve Bank of Kansas City, the volume of new operating loans at commercial banks increased over 40% from last year. This has been the fastest volume increase pace since 2017.

According to the Survey of Terms of Lending to Farmers, larger loans and loans originated at small or mid-sized lenders drove the increase in short-term financing for the past two quarters.

Of note, loan maturities have declined (most notable for the larger loans) whereas earlier this year maturities were on the rise. The average interest rates on all farm loans were slightly above 8% in Q3 2024.

EDITOR’S TAKE:

So, farmers/ranchers are borrowing more money at higher interest rates and with shorter maturity. These operating loans are very common, although the size of loans suggests that cash flow has declined due to lower commodity prices. The good news, farmers and ranchers paid down a huge portion of longer-term debt during the recent boom years, when cash was readily abundant. Also of note, land values are holding steady so their balance sheet will show a strong equity position. Thus, collateral should not be an issue. Just a reminder for CAD members – be sure to think about using CADFI when financing farmers/ranchers. You can not only consolidate financing needs but also match payment schedules to cash flow.