Ag lenders less optimistic about borrower profitability in ‘24

Ag lenders expect only 58 percent of borrowers will be profitable this year, down 20 percent from 2023, according to a 2024 ag lender survey from the American Bankers Association and Farmer Mac. .The survey was released Nov. 14 during the second day of the American Bankers Association Agricultural Bankers Conference in Milwaukee. .Credit quality and agricultural loan deterioration was the top issue facing lenders this year, according to the report. Lender competition and interest rate swings were the second and third highest concerns, respectively, according to the ABA. While concern increased for grains, fruits and tree nuts, it fell for dairy, beef and poultry. Demand for loans secured by agricultural and farmland production loans increased this year, with those surveyed expecting loan demand will continue to rise for both categories over the next 12 months. .The combination of lower export demand for U.S. ag goods combined with a rise in global inventories has placed downward pressure on global commodity prices and farm income, according to the report. Profitability expectations differed by region and commodity types, with lenders expressing more optimism for livestock producers than crop growers..U.S. ag exports are expected to fall $4 billion in fiscal year 2025 to $169.5 billion amid lower unit values of soybeans, corn and cotton along with a drop in beef volume, according to the USDA. Soybean exports are projected to fall $1.5 billion to $22.9 billion, and corn exports are expected to drop $900 million to $12.2 billion as lower unit values more than make up for higher volumes of both crops. .Farmland values continued to increase this year, but at a slower pace than in previous years. Most lenders predict land values and cash rents could plateau or fall over the next year. Lenders reportedly expressed concern about producer liquidity and farm income, with less anxiety about inflation and weather. . "Agricultural credit quality remained robust in 2024, but lenders expect deterioration in the coming year as farmers face a more challenging environment," said ABA Senior Director of Research Tyler Mondres. "Lenders are taking prudent steps to manage risk such as tightening underwriting standards, and they remain committed to working with and supporting their borrowers.".Other ABA/Farmer Mac survey findings included:.Ag loan delinquencies and chargeoff rates were stable, as lenders expect credit quality will worsen over the next 12 months due to farmers facing a more challenging environment. A higher share of lenders reportedly plan to tighten underwriting standards and loan terms for agricultural credit. Lenders reported an average new ag loan application approval rate of 86 percent for the 12 months leading up to August 2024, and anticipate that to rise to 88 percent in the following 12 months.