AEI Premium: Farm Loan Delinquencies Turn Lower

By David Widmar


Over the last several weeks, we have summarized the latest ag lending data from the Kansas City Federal Reserve. We noted that interest rates hit career lows but are likely to approach decade highs in 2022. Also, the Farm Machinery Repayment Index remains low, driven mainly by extended repayment terms. This week, we are reviewing farm loan delinquencies rates.

Farm loan delinquencies are an insightful measure of the health of the overall farm economy and provide a measure of the magnitude of farm financial stress. We think these data are more insightful than farm loan bankruptcy data as delinquencies capture less severe financial stress. Furthermore, not every farm is eligible for farm Chapter 12 bankruptcy protection.

Non-Real Estate

Figure 1 shows the share of non-real estate farm loans that have been categorized as delinquent in the fourth quarter, going back to 1987. At the end of 2021, 1.14% of farm loans were delinquent, down from 1.60% in 2020 and the recent high of 1.84% in 2019. After trending higher from 2014 to 2019, the downturn has been a welcome improvement in the farm economy. Without a doubt, the upturn in farm income and government payments has been the major driver of improvements.

Across the 35 years of data available, non-real estate farm delinquency rates have averaged 2.07%. Farm loans last exceeded the long-run average in 2009 (2.41%) and 2010 (3.08%) during the Great Recession.

Figure 1. Share of Farm Non-Real Estate Loans Delinquent, Q4, 1987-2021. Data Source: Kansas City Federal Reserve Bank. Average (in black): 2.07%.


Real Estate Loans

Figure 2 shows the delinquency rates for farm real estate loans. At the end of 2021, farm real estate delinquencies sharply fell to 1.44%. The rates were previously higher at 2.05% (2020) and 2.21% (2019).

Farm real estate delinquencies are also significantly lower than the long-run average (2.28%) and are approaching historic lows. Only twice before – 2005 (1.34) and 2006 (1.31) – have farm real estate delinquencies been lower.

Figure 2. Share of Farm Real Estate Loans Delinquent, Q4, 1992-2021. Data Source: Kansas City Federal Reserve Bank. Average (in black): 2.28%.


Rapid Changes Possible

From 2014 to 2020, financial stress steadily eroded balance sheets and farm loan performance. Subsequently, delinquencies increased and approached the long-run average. For farm real estate loans (Figure 2), the six years of increasing delinquencies were largely erased in just two years.

Figure 3 shows the annual change in the percentage point of reported farm real estate delinquencies. Most annual changes are +/- 0.5 percentage points. However, in 2008 and 2009, delinquencies increased by 0.71 and 1.08 percentage points. This large, back-to-back change reflected a rapid increase in farm financial stress. On the other hand, conditions have also rapidly improved with large, consecutive declines. For example, delinquency rapidly declined from 2012-2014.

Keep in mind there is always some degree of financial stress. Even when farm incomes in 2011 and 2013 were near all-time highs, farm loan delinquencies still occurred. These data highlight that not every farm thrives in times of boom.

Lastly, for as strong as farm loan performance was at the end of 2021, history suggests those conditions can rapidly change. This isn’t a forecast for where conditions in 2022 or 2023 might be headed but a reminder that the range of possible outcomes is often wider than most of us anticipate.

Figure 3. Annual Change in Share of Farm Real Estate Loans Delinquent, Q4, 1992-2021. Data Source: Kansas City Federal Reserve Bank, Calculations by


Wrapping it Up

The decline in farm loan delinquency rate – which is again approaching all-time lows – is another data point confirming the significant improvement in the farm financial performance in 2020 and 2021. This will provide the sector some much-appreciated breathing room for whenever the farm economy outlook isn’t as favorable or perhaps even turns challenging.

There are two key long-run trends to keep in mind. First, it’s been several years since the farm economy has experience delinquency rates above the long-run average. While conditions from 2014-2019 were challenging for many producers, these data show farm loan performance was stronger – despite the challenges – than conditions during the Great Recession and throughout most of the 1990s. Second, the delinquency rate often adjusts slowly from year to year, but large changes in short periods of time are possible.