Farm Lending Stabilizes, but Bank Liquidity Tightening

By: Nathan Kauffman, Assistant Vice President and Omaha Branch Executive and Matt Clark, Assistant Economist

Lending at agricultural banks appeared to stabilize in the third quarter of 2017, but risks in the sector have remained alongside a persistently weak agricultural economy. After declining in the winter months, the volume of loans used to finance non-real estate farm purchases rebounded in the third quarter to a level similar to a year ago. Despite the rebound in lending activity, however, risk ratings on new farm loans have increased somewhat, interest rates have edged higher and loan-to-deposit ratiosa key measure of bank liquidityalso have increased.

After dipping three quarters ago, farm lending activity picked up in the third quarter to a level similar to a year ago. The recent stabilization in lending activity may suggest that borrowers and lenders have made some adjustments alongside reduced profit margins and spending that have persisted for several years. Although farm lending appeared to stabilize in the third quarter, liquidity remains a concern for some borrowers and also for some lenders. Some borrowers may find it increasingly difficult to obtain credit amid low profits. Meanwhile, rising loan-to-deposit ratios at many agricultural banks also may induce more caution in the months ahead.

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Photo: courtesy Federal Reserve Bank of Kansas City

Story source: KC Fed Ag Finance Databook

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