Lenders See Reduced Profits In 2024

Agricultural lenders see declines in 2024 farm profitability according to a survey of lender sentiment released this week.

Profitability is being viewed as likely for three-quarters of borrowers in the current farm year, and lenders believe that two-thirds of borrowers will be profitable in 2024. 

The costs of rising interest rates have become the largest concern for lenders, replacing input costs which dominated the balance sheets of the farming sector in 2022 and 2023.

Nate Kauffman Federal Reserve of Kansas City: “..the strength in economic growth in 2021 and really even through 2022 and now this year has been pretty good and maybe even in some places stronger than what might have been expected.  So that that is supportive them that of an environment that that that has export activity in either direction. If we were to see for whatever reason a more significant economic slowdown whether it's in Mexico or the United States, some of that ties back to how we have to think about monetary policy and interest rates. We know that effects associated with increase in interest rates don't happen immediately. It can take some time for those effects to to play out.”

The effect of the higher rates is expected to ripple through farm finances for the next three decades.

Jackson Takach, Economist, Farmer Mac: “So in Farmer Mac portfolio, we think very long term. So a lot of our ag mortgages are out 25 - 30 years and those farmers who refinanced at 21 and 22 have fixed rates that are good for a long time at very low, very attractive interest rates. So it's going to take a little bit of time for the real estate side or even the machinery and equipment and some of those intermediate term financings to really be impacted by the higher interest rate. You're going to have to wait till some of those notes mature and then they might start to see those creep up.”

Borrowers can expect to see tightening underwriting standards, and steeper loan terms as long as the interest rate environment remains volatile.

For Market to Market, I’m Peter Tubbs.