Ag Banks Seem to be in Good Shape
A recent KC Federal Reserve reports that Ag focused banks are doing well
Here are some of the key findings:
Non-real estate debt among agricultural banks increased about 8 percent from a year ago and has grown at a pace above the 20-year average for more than two years, although it dropped from a peak around 20% in 2023/24.
Real estate farm debt growth remains very modest.
Growth in both farm and non-farm loans at agricultural banks has outpaced or matched deposit growth for three consecutive years.
Banks where farm loans account for more than 300% of capital have seen the largest decline in liquidity (difference between loans and deposits).
While liquidity tightened alongside strong loan growth, earnings performance at agricultural banks improved. Average net interest margins at agricultural banks also increased to the highest level since 2019 and supported an increase in average returns on assets.
Average farm load delinquencies increased but are nowhere near the recent peak in 2019 and loan writes are still very manageable.
Part of this health for Ag Banks may tied directly to the livestock sector since the health in that sector can help offset the less healthy trends in the crop sector. However, another $10 billion from SDRP, $12 billion from FBA and $12-14 billion from 2025 ARC/PLC to be paid starting October 2025 should help ag bankers sleep better at night.