Farm Real Estate Loans Trend Up Slightly
The Kansas City Federal Reserve released their latest Ag Finance Update. The report contained four charts that we found interesting and we will review each one.
Chart 1 shows the rate of change for farm loans outstanding at banks. During 2019-2021 farm loans showed a negative rate of change. An influx of MFP, PPP and CFAP likely resulted in this trend. However, starting late last year, we see a small increase in loans to farmers. Real estate loans were up about 5% in the latest reading while operating and equipment loans were about flat.
Chart 2 breaks down the rate of change by loan size. Loans less than $25 million show a decline, whereas loans over $25 million show about an 8% increase and loans over $100 million show at least an 8% increase in real estate loan activity.
Chart 3 shows deliquent loan changes and the first two quarters of 2022 show a dramatic reduction in these deliquencies down between 25-35% for each quarter. The percent of farm loans in this status sits at about 1.5%. The only time it was lower in the last 12 years was in 2014-2015.
Chart 4 shows some key indicators for farm banks. Net interest margin is at multi-year lows around 3%. However, as the Fed raises rates we will likely see this trend up. Return on Assets and the Equity Capital Ratio saw large drops. However, this is likely due to the large spike of PPP loans that were on the books of these banks that are now likely removed. We should see these ratios return to more normal levels soon.
The bottom line is that farm banks are very healthy, at least for now. As we saw with the 2010s, the good times of 2010-2013 took several years to unwind into not so good times. Hopefully this time the result will be a little better.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Comments are closed.