Agricultural Lending Increases, As Do Interest Expenses for Farmers
By: Cortney Cowley, Economist and John McCoy, Research Associate
Lending at agricultural banks increased sharply in the fourth quarter, after appearing to stabilize in previous quarters. Large loans drove the increase in farm lending, which may heighten concerns about cash flow in 2018 as interest rates have continued to rise steadily. At the same time, farm income has stabilized somewhat, but at a low level. And while the farm economy has remained relatively steady, further increases in loan obligations could stretch borrowers repayment capacity in the coming year.
Farm lending was boosted by larger-sized loans in the fourth quarter even as interest rates continued to rise. Although overall leverage in the agricultural sector has remained relatively modest, the recent uptick in the average size of farm loans at a time of rising interest rates suggests that leverage and liquidity may remain a concern in 2018. Still, delinquency rates have remained low and the value of farm real estate has continued to support farm sector balance sheets as spring planting decisions approach.
Story source: KC Federal Reserve Bank