Farm sector operating loan volumes and farm income continued to drift apart in the second quarter according to the Federal Reserve System's Agricultural Finance Databook.
Although loan volumes have increased steadily since 2011, recent increases have coincided with a period of declining farm income. According to the USDA, crop cash receipts have declined 22 percent since 2012, but costs associated with manufactured inputs, seeds and rent declined just 1 percent in the same period.
Amid growing disparity between crop revenue and input costs, the ratio of current operating loan volumes to net farm income grew significantly in 2015. In fact, the ratio of operating loans to farm income continued to rise, even as other non-real estate loan volumes, relative to farm income, moderated.
The recent increases in operating loans have been driven, in part, by increases in large operating loans. In the second quarter, operating loans accounted for 55 percent of all loans greater than $250,000, compared with an average of 39 percent from 2010 to 2014.
Although delinquency rates and charge-off rates on farm loans have remained relatively low, recent survey data point to slight increases in the potential for future risk in farm sector lending and generally weaker credit conditions.
The Agricultural Finance Databook is a quarterly compilation of national and regional agricultural finance data.
To read the complete report click here.