Agricultural producers are currently having to manage numerous factors, including drought and rising input costs. In addition, the ag sector will see interest rates continue to increase as the Federal Reserve tries to reduce inflation. As the general economy and ag economy moves into a high interest rate environment, understanding agriculture debt becomes important. The majority of loans originate from the farm credit system or commercial banks. Every commercial bank in the U.S. submits quarterly performance reports. These reports include the number of agricultural loans and the status (on time or late) of the loans. Figure 1 displays the total loan volume, and total loan volume for all three late type volumes (30-89 days late, 90+ days late, Non-Accrual) for the last five quarters. The totals are for all the states in the Southern Region.
Through the first quarter of 2022, loans that are non-accrual and 90+ days late have maintained their trend. Non-accrual loan volume continued to decrease, while 90+ days late loans stayed relatively steady. These are positive indications that delinquent loan debt hasn’t increased. Total loan volume is approximately $1 billion higher than a year ago. This is expected as input costs have increased. Total debt volume for loans that are 30-89 days late continued to increase. This increase was expected due to the seasonality of these loans. That is, the highest volume of late loans is seen annually in Q1 and the lowest annually in Q3. Interestingly, the total volume of these loans (30-89 days late) is $8 million lower than in 2021. This also is a positive sign that loans stayed current over the past year, even with the increased input costs.
As we move into a high interest rate environment, the current status of commercial ag debt has some positivity. But this positivity could reverse for several reasons (i.e., drought continuation in areas). In the coming months, it is crucial that producers are efficient with their capital consumption and are mindful of their debt structure.