Farm loan demand remained muted at commercial banks in the first quarter of 2021. The Kansas City Federal Reserve Bank reports that a reduction in the volume of operating loans led to an overall decline in total non-real estate lending. Financing activity also declined more notably at banks with relatively large farm loan portfolios, while lending was more stable among small and mid-size lenders.
The KC Fed says factors specific to the pandemic in 2020 likely contributed to the reduced lending activity as the year progressed. Substantial government aid through various programs in 2020 provided financial support. In addition, the Small Business Administration’s Paycheck Protection Program accounted for a sizable share of loans reported, and likely displaced a portion of typical financing needs. Despite some challenges for cattle producers, financial conditions in agriculture remain favorable. The outlook for 2021 remained significantly improved from recent years, but rising input costs could also weigh on profit margins in the months ahead.