(NDAgConnection.com) – The top concern for agricultural lenders heading into 2023 is interest rate volatility, according to the 2022 Agricultural Lender Survey report produced jointly by the American Bankers Association and the Federal Agricultural Mortgage Corporation, more known as Farmer Mac.
Nearly half of respondents (49.0%) ranked interest rate volatility among their top two concerns, up 35.5 percentage points from a year ago. While higher rates have helped bolster banks’ net interest margins, a combination of higher funding costs, fears of weaker loan demand and stiff competition are expected to dampen the rise in interest rates. yields, according to the report released today at the ABA Farm Bankers Conference in Omaha, Neb.
“Given the clear signal from the Fed that it plans to continue raising rates until inflation is contained, it is fitting that agricultural lenders have cited interest rate volatility as their main concern. concern,” said ABA Chief Economist Sayee Srinivasan. “Lenders expect short and long-term rates to continue to rise over the coming year, reflecting market expectations that rates could rise another 100 to 150 basis points d ‘by the end of the first quarter of 2023.”
In response to the survey, lenders cited inflationary pressures as their top concern for producers. Liquidity and farm income, two of the top two concerns in previous years, were the second and third biggest concerns respectively this year. According to the report, lenders remain comparatively more concerned about weather and less concerned about total leverage than in previous survey years. Recession risk, a new category this year, was the fifth-largest concern of lenders for producers. By comparison, lenders ranked “a slow economic recovery” low on their list of concerns for producers in 2021.
“Many U.S. farmers and ranchers have seen a strong recovery in 2021 and 2022, driven by rising commodity prices and robust sales,” said Jackson Takach, chief economist at Farmer Mac. “Looking forward, agricultural lenders are watching expenses closely as the costs of feed, fertilizer, fuel and other inputs remain high.”
Respondents’ level of concern for all product categories has decreased this year. Lenders reported the highest levels of concern for the dairy, fruit and nut, and beef cattle sectors, but concerns for each sector showed improvement from 2021 levels. notably decreased for cereals during the year.
For the second year in a row, most agricultural lenders (66.3%) said overall farm profitability had increased over the past year. About one in ten lenders (10.3%) said overall profitability had declined. Lenders expect conditions to deteriorate next year, with 52.6% expecting farm profitability to decline over the next 12 months. However, this is still well below the 2016-2020 survey average of 82.3%.
About four in five agricultural lenders reported an increase in land values in 2022, consistent with the 2021 survey results. However, a growing percentage of lenders expected land values to slow (59.4 %) or decrease (12.7%). Cash rents were also reported higher in 2022, with 72.2% of lenders reporting higher rents in their market areas and 43.2% of respondents expecting cash rents to continue to rise over the next 12 months, which could add to inflationary pressures for producers.