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Fed report: Ag banks adjust as loan volumes increase

Agricultural loan volumes continue to increase, according to an ag finance update from the Federal Reserve.

That’s causing more ag banks, especially smaller ones, to reduce their risk by syndicating loans—selling or sharing loans with outside organizations.

Cortney Cowley, ag economist with the Kansas City Federal Reserve Bank, says it could be another indication of elevated financial stress in the farm sector.

“Small ag banks have really increased their usage of loan participations and syndications,” Cowley says. “We talk about how, over time, as we’ve been seeing these higher loan volumes, the ratio of loan volumes to net farm income has also risen pretty substantially.

“Liquidity has been one of the bigger issues…farms have remained relatively solvent over this time period, but liquidity continues to be a concern.”

The Fed’s report says small farm banks syndicated 40 percent of their loans in the first quarter of 2019, compared to 10 percent in 2012.

The small ag banks also are using Farm Service Agency loan guarantees on a growing portion of their loans.