Farm loans grew across the country and in the region that includes Kansas, according to a report this week from the American Bankers Association.
The ABA’s 2013 Farm Bank Performance Report said that the 2,152 farm banks in the U.S. collectively increased agricultural lending 9 percent between 2012 and 2013 to $87.8 billion.
The ABA defined farm banks as those whose ratio of domestic farm loans to total domestic loans was at least 14.42 percent in 2013.
In the report’s Plains Region, which includes Kansas and seven other states, farm loans at 828 banks increased 9.3 percent in 2013, to a total of $33.9 billion.
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The report also noted that farm banks in the Plains Region struggled to maintain profitability last year, with their median return on equity rising only 0.01 percent point to 7.92 percent, and median return on assets falling 0.03 percent to 0.83 percent.
State and local banking officials agreed that the data reflect what they saw in Kansas last year, and the challenges that the state’s farm banks face this year.
“The ag sector is an interesting sector for the lending business in that ag has had a really good run the last couple of three, four years,” said Chuck Stones, president of the Kansas Bankers Association. “But that doesn’t necessarily translate to ag bank profit.”
What that means is that a combination of persistently low interest rates and extra revenue for many Kansas farmers and ranchers – from higher livestock and crop prices and a surge in oil and gas leases – has suppressed normal demand for many types of agriculture loans and the profit that comes from them.
Mark Keeny, CEO of Kingman-based Citizens Bank of Kansas, characterized the farm lending environment during the past couple of years as “short-term pain but long-term benefit.”
Short-term pain for banks because farmers and ranchers weren’t borrowing as much money, said Keeny, whose $225 million bank has 40 percent of its lending portfolio in agriculture loans. The “found money” they received from an increase in oil and gas leases they’ve been using to purchase more land and equipment or paying down existing farm loans, he said.
Keeny said the long-term benefit, however, is the lease revenue has helped farmers and ranchers to “deleverage,” or decrease their debt, which makes them more financially stable.
“It’s been a really good thing,” Keeny said, adding that his bank grew its loans 13 percent between 2012 and 2013, a combination of commercial and industrial loans and agriculture production loans – loans used for purchasing seed, fertilizer and fuel.
Keeny and Stones said they expect more demand this year for farm loans. That’s partly because oil and gas lease activity is subsiding so there will be less revenue coming to farmers and ranchers, they said.
They also think demand for farm loans will be stimulated by falling farm income in 2014. The ABA’s report says the U.S. Department of Agriculture’s projections of a nearly 22 percent decline in net farm cash income will be driven by lower crop cash receipts, a change in the value of crop inventories and reduced government farm payments.
Less cash on hand should mean a rise in farm loans, the bankers said.
“I just had a meeting with the (KBA’s) ag division,” Stones said Thursday. “They’re pretty satisfied right now. They’re not hesitant about ’14 even if it (farm cash income) does dip. I think the ag banks are doing what they know to do.”