Operating Loans for Farms Hint at Risk

Economists with the Federal Reserve have taken note of a worrisome trend in agriculture: Operating loan volumes have risen among farmers, the Fed reports, while farm income in 2015 has been projected to drop compared to last year. Loans made to finance short-term operating expenses drove the increases in farm sector lending at commercial banks, the data showed.

Non-real estate farm loan volumes rose in the second quarter of 2015, driven again by a sharp increase in operating loans. The national Survey of Terms of Bank Lending to Farmers, conducted during the first full week of May, showed volumes for non-real estate farm loans increased 5% from the second quarter of 2014. Operating loan volumes surged 25% from a year ago, offsetting an 18% drop in loan volumes for other non-real estate farm loans.

In the second quarter, operating loans accounted for 55% of all loans greater than $250,000, compared with an average of 39% from 2010 to 2014.

Thus far, credit risk associated with farm loans has generally remained stable, the report said. In the second quarter, the average risk rating on all farm loans was near 3.0, indicating only moderate risk. Interest rates also have remained historically low.

The Fed concluded that the data suggests a slight increase in the risk associated with agricultural production in the U.S.  S