When it comes to the first two quarters of 2023, what is the expectation of the farm economy from the banker’s perspective? That was one of many questions the 2022 Ag Lender Survey, produced by the American Bankers Association and Farmer Mac, looked to answer.
Jackson Takach, chief economist with Farmer Mac, says most lenders agree the industry will continue to see an increase in the general level of interest rates.
“And that was actually the number one concern for most lenders who responded to us, was that interest rate volatility, and what that does for loan demand, and what that does for potential credit quality issues. So, things like delinquencies and charge-offs, and will higher interest rates lead to repayment capacity problem? So that’s top of lenders minds is, ‘hey, there’s a lot more volatility in interest rates than there used to be, and it’s in a direction that’s different than we’re used to.’ It used to be ‘oh, it was always coming down’, that was the volatility was going to go lower, but now the volatility is, it’s going to go higher.”
Takach says that’s led to a general concern about what those interest rates do to loan demand and how it impacts farmers’ ability to repay.
“Looking historically, you know this is not the first time we’ve seen rising interest expense on the farm. It’s happened a couple of times. Generally speaking, we’re in a pretty good position, so the sector, as a whole, can handle higher interest rates and a lot have taken advantage of long-term fixed rates in the last few years. So, it was a record refi boom the last couple of years, so you know the farm balance sheets were in pretty good shape heading into this, but there’s always going to be that concern about ‘hey, if rates rise too fast, what is that going do to get repayment?’”
