Despite last year’s economic turbulence, the total agricultural lending by U.S. farm banks was $98.6 billion in 2020, down just 1.8 percent from the year before, according to the American Bankers Association’s annual farm bank performance report.
Ag production loans declined by 6.7 percent in 2020, while outstanding farmland loans increased 2.1 percent to $56.7 billion. Ag bankers distributed $12.7 billion in PPP loans last year, and $45 billion in small and micro loans in 2020.
According to the ABA report, demand for agricultural production loans decreased in 2020 due to rising costs, supply and production bottlenecks, price volatility and governmental cash support. Federal payments also enabled producers to pay existing loan balances.
“While the agricultural sector will continue to face challenges as the economy reopens and recovers from the coronavirus pandemic, the strong asset quality and capital levels of America’s farm banks will help ensure that they continue to provide support to rural communities,” said Sayee Srinivasan, the ABA’s chief economist.
The ag performance analysis was based on FDIC data of 1,642 banks that specialize in ag lending, those that have a ratio of domestic farm loans to domestic total loans greater than or equal to the industry average. By the end of the year, these banks had secured 172,818 PPP loans through more than 7,700 branches in rural America.
The agricultural banking sector was also a main source of credit to smaller farmers, with more than $10 billion in micro farm loans, or those with a value less than $100,000, and $45.2 billion in small farm loans, or those with a value less than $500,000, by the end of 2020.
Asset quality among farm banks improved slightly, as more than half of the banks reported an increase in earnings. Farm banks added more than 2,000 jobs last year, up 2.4 percent from last year, employing more than 81,000 people in rural communities across the country.
Equity capital increased 9 percent to $52.6 billion, and Tier 1 capital increased to $48.3 billion, up $3.6 billion from 2019. The report demonstrated that the banking industry as a whole held $174 billion in farm and ranch loans, and made 1.1 million small farm loans amounting to $71 billion by the end of 2020, including more than 744,000, or $17 billion, in microloans.
“American farm banks have remained healthy this past year and continued to play a critical role in supporting farmers and the broader US economy through the turbulence of 2020,” Srinivasan said.
The report also offered the following regional snapshots:
- In the South, 164 farm banks increased farm loans by 0.40 percent to $8.2 billion in 2020. Ag production loans fell 3.11 percent from 2019 while farmland loans rose by 1.7 percent.
- The Cornbelt region’s 792 farm banks decreased farm loans by 1.93 percent to $46 billion in 2020. Ag production loans dropped by 6.89% from 2019 while farmland loans rose by 1.93 percent.
- The 626 farm banks in the nation’s Plain’s region decreased their farm loans by 2.29 percent to $38 billion. Ag production loans fell 6.75 percent and farmland loans increased 2.27 percent.