Farm operating debt surged in Q1

Non-real estate farm loans increased 15 percent in the first quarter of the year, a 15 percent increase from last year and the largest such increase since the late 1970s, according to Federal Reserve Bank of Kansas City Economists Francisco Scott and Ty Kreitman.

Farm debt at commercial banks has steadily grown from last year amid a surge in operating debt, according to the June 20 report. The increase in farmers’ financing needs  produced higher interest earnings on operating loans at agricultural banks. A small increase in farm loan delinquency rates and higher interest expenses partially offset banks’ elevated interest income.

Rising interest expenses continued to outpace banks’ interest income from farm loan yields. Profits remained strong despite interest expenses limiting margins. Heightened demand for higher-yielding farm operating loans could support interest income going forward, said Scott and Kreitman.

“Yields on farm operational loans increased by more than 1 percentage point from the previous year, surpassing the growth in yields for other assets,” wrote Scott and Kreitman. “Agricultural banks continued to expand their loan portfolio, replacing lower-yielding assets on their balance sheet.” 

Banks with farm loan portfolios of less than $500 million hold 75 percent of the $15 billion growth in agricultural debt, according to the report. Lenders with portfolios of more than $1 billion accounted for about 10 percent of the growth, said Kreitman and Scott.