Navigating the Challenges in Agricultural Lending: Trends and Solutions
Banks and other financial organizations face a challenging landscape when it comes to funding and lending to farmers and agri-businesses. Shortcomings in credit risk management, resulting from conditions in the global and market environment, create barriers to providing loans that meet the cash flow needs of borrowers.
Risk is part of ag lending. However, spreading the risk through participation loans can help alleviate some of the pressures felt by lenders, enabling them to provide the more flexible terms producers need to make their operations work.
The following trends and events shed light on the factors influencing ag lending decisions.
Fluctuating commodity prices: Commodity price trends serve as important indicators for projecting borrower liquidity, which directly affects loan repayment. Corn, soybeans and wheat have experienced volatility since 2020, and this trend is expected to continue throughout 2023, albeit at higher levels compared to pre-2020.1
Unpredictable weather patterns: Weather is a major risk driver in agriculture. Since 1980, the United States has witnessed an increase in extreme heat, wildfires, droughts, intensified storms and flooding, affecting every region of the country. In 2022 alone, the U.S. experienced 18 weather and climate disasters causing $21.4 billion in cumulative damages to crops and rangeland.2
Outbreaks: Animal disease outbreaks and highly contagious viruses, such as the highly pathogenic avian influenza (HPAI) outbreak of 2022, can have devastating effects on herd and flock populations. While insurance payments and federal assistance can help producers recover from these events, gaps still exist as producers forgo income while rebuilding their populations.
Inflation: Higher interest rates have had an impact on farm lending, with non-real estate farm loan volumes decreasing by 10% in the first quarter of 2023 compared to the previous year.3
Partnering with Agri-Access: Mitigating Risks and Providing Flexible Solutions
Risks and challenges will always be a part of agriculture. However, by partnering with Agri-Access, banks can mitigate some of these risks through lending solutions that provide borrowers with access to flexible terms tailored to their needs.
Our participation lending solutions help you cater to the needs of borrowers, including a fast-underwriting Scorecard option. By leveraging participation loans, you can increase your lending capacity, provide longer terms, and offer fixed rates to borrowers. With participation loans, multiple lenders collaborate to fund a single borrower, enabling risk-sharing and making loan arrangements more viable. In this partnership, you remain the lender of record.
Throughout the relationship, Agri-Access provides a high level of support as well as the subject matter expertise from our team of dedicated underwriters, appraisers and other ag specialists.
Our expertise in risk management, our ability to provide more flexible loan terms and our understanding of the unique needs of ag customers can enable lenders like you to weather the challenges of volatile pricing and provide better lending solutions to their customers.
Agri-Access provides the capital you need to expand your client base. We offer longer fixed-rate terms, competitive interest rate options, access to higher lending capacity and multiple loan options. To learn more, download our eBook The Ag Lender’s Guide to Growing Your Loan Portfolio.
Sources
- Successful Farming | Play it again: high and volatile commodity prices in the year ahead
- Farm Bureau | New Estimates Reveal Major 2022 Weather Disasters Caused Over $21 Billion in Crop Losses
- U.S. Federal Reserve Bank of Kansas City| Interest Rates Rise and Farm Lending Softens
