Agriculture loans rose in Q2 with delinquencies at long-term lows

Agriculture loans at US banks increased in the second quarter amid low delinquency rates, as US farmers' sentiments improved, buoyed by expectations of better times ahead.

US banks booked $190.42 billion in total agriculture loans in the second quarter, up from $183.60 billion in the first quarter and $180.02 billion in the second quarter of 2022, according to S&P Global Market Intelligence data.

Agricultural production loans — or those for funding agricultural production, including crops and livestock — rose by 8.3% to $75.73 billion in the second quarter from $69.94 billion in the first quarter, and by 6.9% from $70.83 billion in the second quarter of 2022.

Farm loans — or loans secured for farmlands and improvements on them through mortgages and liens — rose by 0.9% to $114.70 billion from $113.66 billion in the preceding quarter, and by 5.1% from $109.19 billion in the year-ago quarter.

Record low agriculture delinquency rate

Agricultural loans' overall delinquency rate fell to less than 0.9% in the second quarter, the lowest in at least a decade.

Delinquent agricultural production loans dipped about 21 basis points quarter over quarter and approximately 12 basis points year over year. Delinquent farm loans fell about 9 basis points from the preceding quarter and by about 28 basis points from the previous year.

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Delinquencies at US banks

Among US banks and thrifts with at least $50 million in farm loans extended as of June 30, only Santa Rosa, Calif.-based Summit State Bank posted a double-digit delinquency rate, at 24.1%. The bank's farm loan balance dipped by 1.0% to $77.3 million from a year ago.

The rest of the 10 US banks with the highest year-over-year farm loan delinquency growth rates posted single-digit delinquency rates and less than 5-percentage-point increases year-over-year.

On agricultural production loans, Birmingham, Ala.-based Regions Financial Corp. logged the highest delinquency rate of 16.5% in the second quarter. Greenwood Village, Colo.-based National Bank Holdings Corp. trailed second in agricultural production loan delinquency rate at 12.6%.

Top agriculture lenders

Reno, Nev.-based John Deere Capital Corp. remained the biggest lender to the US agriculture sector. More than half of its gross loan portfolio was given to agricultural production loans that were worth $25.05 billion in the second quarter, up from $23.11 billion in the first quarter. The bank reported zero farm loans during the period.

Bank of America Corp. was again the distant second-largest US agriculture lender in the quarter, with an agriculture loan balance of $5.31 billion, followed by Wells Fargo & Co. with $4.09 billion.

Chicago-based BMO Financial Corp. was again fourth, and, as it did in the first quarter, recorded the biggest year-over-year increase in agriculture loans in the second quarter among top-tier banks and thrifts. BMO acquired San Francisco-based Bank of the West from French lender BNP Paribas SA through subsidiary BMO Harris Bank NA on Feb. 1. Bank of the West had $2.99 billion and BMO Harris had $678.1 million in total agriculture loans as of the fourth quarter of 2022. Agriculture loans now account for about 2.0% of BMO's gross loans.

Omaha, Neb.-based First National of Nebraska Inc. was the fifth-biggest US agriculture lender in the second quarter, with total agriculture loans of $2.20 billion, up 22.6% from a year ago. In the first quarter, First National of Nebraska was not included in S&P Global Market Intelligence's top 20 agriculture lenders because its parent, Lauritzen Corp., did not show the bank's numbers for agriculture loans in its filings, disqualifying it from being included in the analysis, which is based on top-tier companies' filings.

More sanguine outlook

Current conditions in the farming economy continue to be a challenge for some producers, James Mintert, principal investigator of the Purdue University/CME Group Ag Economy Barometer and director of Purdue University's Center for Commercial Agriculture, said in a news release. However, "optimism about US agriculture's future and a more sanguine interest rate outlook help explain producers' more positive view of the future expressed in June's survey," Mintert said.