An influx of smaller loans limited total ag lending dollars at the end of 2021, according to Federal Reserve Bank of Kansas City economists Nathan Kauffman and Ty Kreitman.
Farm lending dropped significantly at the end of the year after increasing in recent years: Non-real estate ag loans at commercial banks decreased by 13 percent in the fourth quarter and the yearly average was at its lowest since 2012 due to a large decrease in operating loans and lending at banks with the largest farm loan portfolios, according to the Survey of Terms of Lending to Farmers. The volume of loans greater than $100,000 fell nearly 20 percent from one year ago, while the extent of all other loans jumped approximately 15 percent.
“Despite an increase in the number of all types of loans, the average size of all non-real estate and operating loans was more than 20 percent and 30 percent less than a year ago, respectively,” the economists wrote. “Loan sizes decreased considerably at lenders of all sizes, but the number of loans increased notably at small and mid-sized lenders and decreased at banks with large agricultural portfolios.”
The ag economy remained strong throughout last year and continued supporting farm finances, according to the report. Commodity prices remained high, initiating profit opportunities through the end of 2021. “Higher costs are likely to put upward pressure on demand for credit, but strong farm income and working capital could also supplement financing for some borrowers,” Kauffman and Kreitman wrote.