Last fall’s reports of the near-collapse of the banking system notwithstanding, the nation’s farm banks increased their lending to farmers in 2008, according to the ABA Center for Agricultural & Rural Banking Farm Bank Performance Report.

In 2008, the report said, the U.S. banking industry held $123.5 billion in farm loans, an 8% increase over the $114.2 billion in 2007. The 2008 figure for farm banks represents more than 50% of the total farm credit outstanding in the U.S., according to the American Bankers Association’s Center.

The total also included $69.1 billion in small farm loans of which $26 billion was invested in “very small farm loans.” ABA Center officials said they consider a small farm loan as being one for $500,000 or less. A micro-small farm loan is $100,000 or less. The number of small farm loans in 2008 surpassed 1.2 million with the great majority – almost 1 million – under $100,000.

“Banks continue to meet the credit needs of agriculture, especially for small farms,” says John Blanchfield, director of the Center for Agricultural & Rural Banking.

Blanchfield says farm bank deposits increased 6.9% from $197 billion in 2007 to $211 billion in 2008. The number of full-time employees at farm banks increased 2.3% from 71,303 in 2007 to 72,942 in 2008. A farm bank is defined by ABA as a FDIC-insured bank with assets less than $1 billion whose ratio of domestic farm loans to total domestic loans is greater than or equal to 14.2% in 2008.

“Thanks to the banking industry, rural Americans, especially the owners of small farms, are finding plenty of opportunities to finance their farms, ranches, businesses and homes,” Blanchfield says. “Banks provide the broadest array of financial products and services to guarantee that rural Americans have access credit when they need it.”
The study, which analyzed the performance of 2,247 farm banks in the U.S., found:

  • Total loans at farm banks grew 8.2% to $170 billion from $151.7 billion in 2007.
  • Farm banks hold $9.8 billion in loans $100,000 or smaller to small farmers and an additional $11.6 billion in loans between $100,000 and $250,000.
  • The 2,247 farm banks held approximately $258.6 billion in assets in 2008, up 7.9% from 2007.
  • Farm bank income, before taxes, totaled $3 billion, which was 10.3% lower than in 2007. In 2007, it was $3.4 billion.

Blanchfield says the Center arrived at its definitions of small and very small by making some assumption about farm size.

“If we assume that a farmer has enough collateral to borrow $500,000, and the bank that makes the loan has a loan to value policy of say, 60%, then we can make an educated guess that the asset base of the entity doing the borrowing is around $825,000,” he says.

“Using Iowa State University’s (ISU) excellent report on farm land values for Iowa for 2008, we could project that in Iowa, the farm would be around 184 acres ($825,000 divided by $4,468 price/acre). If the loan were collateralized by non-real estate assets, it would be harder to try to come up with a farm size.

On micro-small farm loans of less than $100,000: “Again using ISU’s land value survey, the asset base of the borrowing farmer would be around $160,000 – this would be a farm of approximately 36 acres. Or, if the farmer was financing brood cows at $1,200 apiece, the total herd financed would be around 83 head.”