Agricultural bankers see higher income for borrowers; Also note the increase in land prices, inflation, higher input costs

Coggins added that there are concerns about the price of inputs. “When you look at 80% of agricultural inputs related to energy, oil and gas, it’s always a concern. . “

Beyond input prices, Coggins said bankers have highlighted concerns about the national debt as increased federal spending raises inflationary concerns that could push up interest rates. “This, of course, affects the value of land. Those land values ​​are now being augmented by a lot of money available right now.”

While positive about their clients’ chances of profitability, inflation has become a key risk for lenders in 2021, the ABA survey noted. Almost 40% of those polled said inflation was their top concern and 70% ranked it among their top three.

Bankers also reported significantly higher land values ​​in 2021, an increase of 5.3% on average, a trend lenders do not plan to reverse in 2022.

“The reported increase in the value of farmland is further evidence of improving economic conditions for farmers and ranchers in 2021,” said Jackson Takach, chief economist at Farmer Mac. “Lenders have reported significant gains in most regions in 2021, and about 79% of respondents expect additional gains of 3% or more in 2022. The rural landscape.”

Agricultural bankers have also pointed out that they face increased competition from other lenders for their clients’ business. More than 50.4% of survey respondents ranked competition as their top two concerns, up 13 percentage points from last year. The majority (82.3%) ranked the agricultural credit system as their number one competitor for agricultural loans. The ABA continues to focus on what bankers see as unfair competition from farm credit and credit unions in general, as these institutions do not pay income taxes but are also in direct competition with banks to get customers.

For the first time in more than five years, lenders have observed a decline in demand for agricultural production loans, highlighting high concerns about loan demand given stiff competition from lenders in 2021. One of the Factors leading to lower demand for loans was the increased dependence of producers on government payments. Yet farm lenders have also been more aggressive in 2021 by enrolling their clients in programs such as the Small Business Administration’s Paycheck Protection Program (PPP). Agricultural lenders granted more than 600,000 PPP loans in 2021, up 41% from 2020, worth more than $ 16.4 billion.

FSA LOANS

At the Ag Bankers conference on Monday, Zach Ducheneaux, administrator of the USDA Farm Service Agency, spoke to a panel with other FSA loan officers on the loan guarantee program and loans from the FSA. operation of the agency. With the rising costs of fertilizers and other commodities, Ducheneaux said the FSA needs to be flexible with growers and bankers willing to use the FSA’s loan guarantee program.

“We have to push the boundaries of what we are already doing,” he said. Ducheneaux warned that producers could continue to see challenges from the pandemic. “We may not be at the end of it all the way we all hoped.” He added: “Producers have a lot of risk to mitigate, in part because of weather conditions and markets.”

While noting the need for the USDA to be flexible in serving producers, Ducheneaux also noted that there are limits to what the FSA can do with direct loans or guarantees due to limits on the amount. total loans that the agency can support. This forces banks and other institutions to bear the burden of operating loans.

“We don’t have the capacity to serve all the producers who will need it,” he said.

The full ABA / Farmer Mac survey is available at: https://www.aba.com/…

Chris Clayton can be contacted at [email protected]

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