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Agricultural lenders expect just 58 percent of their borrowers to remain profitable this year, compared to 78 percent in 2023, raising the specter of increased loan losses.

The 2024 Ag Lender Survey Reportproduced jointly by the American Bankers Association and the Federal Agricultural Mortgage Corp., also known as Farmer Mac, said the results reflected a surge in global crop supplies that has suppressed commodity prices and threatened both U.S. farm incomes and land value. Most lenders expect land values ​​and cash rents to either fall or fall.

The report found that profitability expectations varied by region and major commodity types, with livestock producers more optimistic than crop growers.

“The one the agricultural economy is inherently cyclicaland agricultural lenders are navigating changing conditions in the sectors they serve,” said Jackson Takach, Chief Economist of Farmer Mac, presenting the findings at the ABA Agricultural Bankers Conference in Milwaukee.

A decline in farm income this year would continue a downward trend. In 2024, the USDA projected net farm income to be $140 billion, down 4% from 2023. This was 15% above the 20-year average, but 28% below the record level of 2022. Farmers collectively earn $185.5 billion in 2022 amid a global surge in demand during the invasion Russia on Ukraine and the resulting supply disruptions in Europe.

Concern no. 1 faced by agricultural banks were loan losses. Creditor competition and interest rate volatility were the second and third biggest overall concerns, respectively, according to the ABA and Farmer Mac report.

“Agricultural credit quality remained robust in 2024, but lenders expect a deterioration next year as farmers face a more challenging environment,” said Tyler Mondres, senior director of research at the ABA. “Lenders are taking prudent steps to manage risk, such as tightening underwriting standards”.

There are more than 1,400 lenders that specialize in farm loans – most of them community banks.

In 2023, 98 percent of agricultural banks were profitable, with 53.5 percent reporting earnings growth, according to the ABA. Due to historically low delinquency rates, the average noncurrent rate at agricultural banks—based on loans past due 90 days or more and loans in nonaccrual status—increased just 3 basis points from a year earlier, to to 0.23%. The non-current loans rate for the wider banking sector was 0.27%.

Agricultural bankers said in a separate survey that their customer confidence is on a steady downward slope.

For the 14th straight month, Creighton University’s main rural index fell well below growth neutrality. The October survey of rural bank CEOs in a 10-state agriculture-dependent region produced a reading of 35.2, down from 37.5 in September. It was the lowest reading since the start of the pandemic in spring 2020. The index ranges from 0 to 100, with a reading of 50 representing neutral on the rise.

“Weak farm commodity prices, declining farm equipment sales, high input costs and declining farmland prices” were all catalysts for the decline, said Ernie Goss, the Creighton economist overseeing the survey.

Goss’ survey found that 61.5 percent of bankers indicated that the financial position of farmers in their service areas had deteriorated in the past six months. The remaining 38.5% reported that the financial position of farmers remained unchanged.

Corn futures recently hovered around $4.30 a bushel, far from the $6 level or higher in 2022. Soybean prices have similarly declined, according to data provider DTN.

“Even with above-average corn and soybean yields, most local farm producers still want cash flow at prices below break-even,” said Jeff Bonnett, president and CEO of Havana National Bank of Illinois, with assets of 300 million dollars.