Small loans limit agricultural loans


Smaller loan sizes limited agricultural lending activity at the end of 2021. According to the Farmer Lending Terms Survey, non-real estate agricultural loans from commercial banks fell by 13% in the fourth quarter and the annual average was the lowest since 2012. The decline was driven by a sharp decline in operating loans and loans to banks with the largest agricultural loan portfolios. Despite an increase in the number of all loan types, the average size of all non-real estate and operating loans was more than 20% and 30% lower, respectively, than a year ago. Loan sizes declined significantly among lenders of all sizes, but the number of loans increased significantly among small and medium-sized lenders and fell among banks with large agricultural portfolios.

Overall, conditions in the agricultural economy remained strong through 2021 and continued to support agricultural finances. Despite growing concerns that rising input costs would affect grower yields in the coming year, commodity prices remained high and supported profit opportunities through the end of the year. ‘year. Higher costs will likely put upward pressure on credit demand, but strong farm incomes and working capital could also supplement financing for some borrowers.

FARMERS LOAN TERMS SURVEY



Agricultural credit activity fell sharply at the end of 2021 and the average volume of non-real estate loans over the past 12 months has almost hit a 10-year low. Total non-real estate agricultural loans fell about 13% from a year ago and, over four rolling quarters, fell to their lowest level since 2012 (Chart 1, left panel). The decline in loans in the fourth quarter was driven by a sharp reduction in the average loan size which offset an increase in the number of loans (Chart 1, right panel).


Chart 1: Total Non-Real Estate Agricultural Loans is made up of two individual charts. Left: Loan Volume – is a line graph showing the total non-real estate loan volume in billions of 2021 dollars during each quarter from the first quarter of 2010 to the fourth quarter of 2021. There are also lines indicating the four-quarter average in during the same period and the 10 -annual average. Right: Number and average size of loans, Q4: Clustered column chart showing the percentage change in the number, average size and volume of total non-home loans from a year earlier during the fourth quarter for the 2015-2018, 2019, 2020 and 2021 average.



The number of new loans from small and medium lenders increased significantly, while most of the decline in loan volumes occurred among large lenders. The number of loans granted by banks with the smallest agricultural loan portfolios increased by more than 35% compared to a year ago, but the average size of these loans was almost 30% lower (Chart 2) . The decline in loan sizes among the largest lenders was less pronounced, but these banks also made fewer loans and accounted for almost all of the decline in total non-home loans.


Chart 2: Lending activity by size of agricultural loan portfolio, Q4 2021 – is a clustered column chart showing the percentage change in the number, average size and volume of total non-real estate loans at small or medium banks and prior year major banks during the fourth quarter of 2021.

Higher loan numbers and smaller loan sizes were consistent across all loan types, but farm loans accounted for most of the decline in loan volume. The number of loans for all major loan categories increased by more than 10%, while the average loan size fell by at least 10% (Chart 3). Average operating loan size was more than 30% lower than a year ago, and operating loans also accounted for most of the decline in total non-real estate loan volume.


Chart 3: Lending Activity by Loan Type, Q4 2021 – is a clustered column chart showing the percentage change in the number, average size and volume of major loan categories (total non-real estate, livestock feedlot, other livestock, operating expenses, and farm machinery and equipment) from the previous year during the fourth quarter of 2021.

The sharp decline in the size of operating loans contrasts markedly with the trend of recent years. After several years of steady increases and a record high in the fourth quarter of 2020, the average operating loan size has fallen to the lowest level for this time of year since 2016 (Chart 4). The number of operating loans remained low compared to previous years, but increased from the historic low in the fourth quarter reached last year.


Chart 4: Lending Activity by Loan Type, Q4 2021 – is a clustered column chart showing the percentage change in the number, average size and volume of major loan categories (total non-real estate, livestock feedlot, other livestock, operating expenses, and farm machinery and equipment) from the previous year during the fourth quarter of 2021.

With a higher number of small loans, the loan mix has shifted away from large loans. The volume of loans over $100,000 is down almost 20% from a year ago, while the volume of all other loans is up almost 15% (Chart 5). The shift in loan distribution towards smaller loans marked a significant reversal compared to recent years.


Chart 5: Change in Loan Volumes by Loan Size, Q4 — is a clustered column chart showing the percentage change in loan volumes across different loan sizes ($3,000 to $9,999, $10,000 to $24,999 $, $25,000 to $99,999 and $100,000+) during the fourth quarter and includes columns for the 2015-2018, 2019, 2020 and 2021 average.

The average interest rate charged on non-housing loans also fell further and remained lowest for the largest loans and at the largest agricultural banks. The average rate for loans over $100,000 remained about 140 basis points lower than rates for small loans and declined slightly from the same period in 2019 (Chart 6). Similarly, the average rate of the largest agricultural banks remained lower than that of other lenders and also decreased slightly compared to the same period in 2019.


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