Volume of New Ag Loans Drops

The volume of new farm loans dropped sharply in the fourth quarter of 2016, according to respondents to the Survey of Terms of Bank Lending to Farmers. The survey, which asks bankers about new loans to farmers, indicated the volume of non-real estate loans in the farm sector dropped 40 percent from a year ago. The 40-percent drop was the largest year-over-year decline in nearly 20 years. The sharp reduction in the volume of new farm loans at commercial banks occurred during a prolonged decline in farm revenue. In 2016, prices for most agricultural commodities continued to fall, building on the declines of previous years, with soybeans being a notable exception (Chart 2). A 30-percent year-over-year drop in the price of feeder cattle helped reduce the cost of purchasing the animals and likely contributed to the sharp reduction in loan volumes in the livestock sector. More generally, lower prices appeared to temper demand for new agricultural financing as producers tried to curtail expenditures. Some banks, recognizing greater risk in the farm sector, may have been more selective in financing new loan requests, and some financing decisions may have been delayed in the environment of heightened risk.