With farm income down in 2015, persistently high need by farmers and ranchers for short-term loans “amplified concerns about farm sector liquidity moving into 2016, especially if farmers’ profit margins remain low,” said the Ag Finance Databook published by the Kansas City Federal Reserve Bank. The book, produced quarterly and looking at agriculture nationwide, said, “Loans used to finance current operating expenses remained at record levels, while most other types of non-real estate loans declined slightly.”
“In fact, the average volume of operating loans in 2015 was 6 percent higher than in 2014 and more than double the low mark set in 2011,” says the report. “The increases in short-term lending … have occurred amid a significant decline in income.”
Despite rising debt levels, loan quality at agricultural banks remained strong, said the Kansas City Fed. Delinquency rates for farm real estate loans during the fall of 2015 dropped to 1.4 percent and for non-real estate loans, 0.7 percent. “Farm lending activity at commercial banks remained elevated through the end of 2015,” said the bank. “Agricultural credit conditions continued to tighten somewhat as repayment rates softened further and demand for renewals and extensions continued to rise.”