Farmland prices are holding steady and agricultural banks are financially strong — potentially two key sources of support for the farm sector during the disruptions of the coronavirus pandemic — said the Federal Reserve in a report on Thursday. “In the midst of substantial declines in prices for key agricultural commodities in March, the outlook for the farm sector and agricultural credit conditions again may be influenced by support from government programs,” said the Fed’s Ag Finance Databook.
“Although it is unclear exactly how events related to the Covid-19 pandemic will affect farm lending moving forward, demand for farm loans may increase as economic disruptions associated with the pandemic could put additional pressure on farm finances,” said the quarterly report.
Before the coronavirus dominated the economy, farm lenders said agricultural lending activity was slowing down, although loans for operating expenses increased nearly 10 percent during the first quarter of the year. Livestock lending was down by 30 percent.
“Despite some modest deterioration in loan performance, agricultural banks have maintained strong financial positions,” said the Databook. “Capital ratios at agricultural banks have increased steadily since the Great Recession and have remained above the industry average.” At the start of this year, “delinquency rates on farm loans continued to increase slightly, but agricultural credit conditions and farmland values were holding steady.”
The Ag Finance Databook is available here.