Banks reported holding over 1.1 million small farm loans worth $69 billion.
Despite headwinds in 2022 due to supply chain disruptions, shocks to supply and demand, volatility in commodity prices, and geopolitical uncertainty, agricultural lending by U.S. farm banks increased 8.1% in 2022 to $103.1 billion, according to the American Bankers Association’s annual Farm Bank Performance Report. The report attributed the change to a 9.7% increase in outstanding loans secured by farmland and a 5.9% increase in agricultural production loans. According to the report, farmland continues to provide a strong equity base for producers to tap as land values saw strong growth in 2022 after plateauing for several years.
“Farm banks enjoyed strong growth and performance in 2022, despite remaining disruptions from the COVID-19 pandemic and rising economic uncertainty,” said ABA’s Chief Economist Sayee Srinivasan. “Moving forward in 2023, the agricultural sector will continue to face challenges due to monetary policy actions targeting persistent inflation in the United States, and increased uncertainty from geopolitical factors. Nevertheless, farm banks remain well-positioned to continue serving the needs of their customers and communities, with strong asset quality and healthy capital levels.”
The report—an analysis by ABA’s economic research team based on FDIC and USDA data—examines the performance of the nation’s 1,488 banks that specialize in agricultural lending. ABA defines farm banks as banks whose ratio of domestic farm loans to total domestic loans is greater than or equal to the industry average.
The report shows that farm banks are also a major source of credit to small farmers—holding more than $43.8 billion in small farm loans, including $9.3 billion in micro farm loans at the end of 2022. A small farm loan is a loan with an original value of $500,000 or less and a micro farm loan is a loan with an original value of $100,000 or less.
Farm banks’ asset quality improved in 2022 as measures of loan delinquency remained low by historical standards. Noncurrent loans at farm banks stood at $1.5 billion at year-end 2022, representing 0.49% of the loan portfolio of farm banks. The median noncurrent loan ratio for farm banks dropped by 14 basis points to 0.19%. By comparison, the noncurrent loan ratio for the broader banking sector was 0.24%.
In 2022, 98.4% of farm banks were profitable, with 48.7% reporting an increase in earnings. Farm banks also served as job creators, adding more than 800 jobs in 2022, a 1.1% increase, and employing more than 75,000 rural Americans.
Farm banks have also built strong, high-quality capital reserves and are well-insulated from risks associated with the agricultural sector. Equity capital at farm banks decreased 15.4% to $41.9 billion in 2022 while Tier 1 capital increased 8.7% to $50.9 billion.
The entire banking industry – not just farm banks – provides farmers and ranchers with the credit they need. At the end of 2022, banks held nearly $190 billion in farm and ranch loans. The U.S. banking industry is also a major source of funding to small farmers. Small loans continue to make up over a third of banks’ farm and ranch lending with $69 billion in small and micro farm and ranch loans on the books at the end of 2022. This included more than 693,000 microloans worth over $16 billion.
“Last year’s numbers show the strong support banks provide to the ag economy, but there is more banks can do with help from Washington,” said Ed Elfmann, senior vice president, agricultural and rural banking policy at ABA. “To increase credit availability in rural America, ABA is a strong supporter of the Access to Credit for our Rural Economy Act (ACRE), which will be introduced in the near future. The legislation will lower the cost of making a loan backed by agricultural real estate, thereby increasing community bank participation and competition in the rural real-estate market. It’s a targeted approach that will save rural borrowers approximately $400 million in interest on real estate loans this year if enacted.”
The Farm Bank Performance Report also provides regional summaries:
- The Northeast region’s 9 farm banks decreased farm loans by 13.08% to $1.3 billion in 2022. Ag production loans fell 2.96% from the year before while farmland loans increased 14.53%.
- The South region’s 137 farm banks increased farm loans by 11.98% to $8.5 billion in 2022. Ag production loans rose 14.87% from the year before while farmland loans rose by 11.00%.
- The Cornbelt region’s 694 farm banks increased farm loans by 8.83% to $49.0 billion in 2022. Ag production loans rose by 7.44% from the year before while farmland loans rose by 9.80%.
- The Plains region’s 574 farm banks increased their farm loans by 5.98% to $37.7 billion in 2022. Ag production loans rose 2.51% from the year before while farmland loans increased 9.07%.
- The West region’s 45 farm banks increased their farm loans by 10.47% to $5.2 billion in 2022. Ag production loans rose by 13.86% from the year before while farmland loans rose 8.27%.
Read the 2022 Farm Bank Performance Report.