Inside the Farm Lending Shift: Debt, Defaults, and Risk Management
This season, producers are feeling the squeeze; costs keep climbing, and profits aren’t keeping pace. Farm debt is rising, and we’re noticing more farms stretching to cover basic bills. For many farms, that kind of stability comes from loans backed by the land farmers already own. These loans are built on real assets and long-term strategy. More producers are turning to loans to keep day-to-day operations moving, not just to invest or expand.
According to the Kansas City Federal Reserve and regional banks, total farm debt rose about 7% in 2024, with operating loan volumes jumping more than 30% for the third straight quarter. Loan demand is running higher than a normal spring. The demand this season matches levels back in 2019. In the past, more borrowing meant growth. Today, it’s driven by volatile inputs, tighter margins, and limited flexibility.
Who’s Carrying Farm Debt: Risks for Lenders
The increase in farm debt hasn’t been evenly spread across the lending landscape. Smaller and mid-tier agricultural lenders, those managing portfolios under $500 million, were responsible for about 75% of the $15 billion rise in farm lending during 2024. By contrast, lenders with over $1 billion in ag loans contributed just 10% to the increase. This lopsided growth is concentrating risk in community-based institutions that primarily serve independent growers and family-run operations.
“We’re seeing operations borrow more just to cover seed-to-harvest costs.
Tim Jett, Conterra Mid-South and Delta RM
In certain instances, it’s shifting beyond opportunity, a lot of people are simply trying to survive.”
A major factor behind this borrowing surge has been the persistence of high operating costs. Costs for fertilizer, machinery, fuel, and labor stayed high in 2024, even as crop prices dropped. Projections show corn and soybean revenues declined by 21% and 12% respectively, despite solid yields in many regions. With input costs eating into margins and no corresponding lift in market prices, producers increasingly turned to short-term credit to cover day-to-day working capital needs and maintain continuity in their operations.
The strain is also clear in the earnings picture. Net farm income, which reached nearly $182 billion in 2022, fell to around $140.7 billion in 2024, a drop of more than 22% in just two years. That kind of contraction limits producers’ ability to reinvest in their businesses, whether through equipment upgrades, land improvements, or technology adoption. Many lenders are now questioning how long current debt levels can hold.
Rising Delinquencies Signal Mounting Stress
Although delinquency rates on farm loans remain relatively low by historical standards, the recent upward trend has caught the attention of ag lenders. In the first quarter of 2025, past-due production loans at commercial lenders climbed to 1.45%, compared to 1.03% at the end of 2024 and 1.02% a year earlier. That shift, while not yet alarming on its own, marks a clear break from the unusually low delinquency rates seen in the years following 2020, and may point to deeper challenges taking root in farm balance sheets.
“When delinquencies inch higher, it’s not just numbers, it’s signals of real farms struggling.
Tim Jett, Conterra Mid-South and Delta RM
It tightens lender diligence, and borrowers feel it.”
Lenders are reviewing everything from crop budgets to collateral before backing loans. Results from the American Bankers Association’s 2024 Ag Lender Survey show that just 58% of farm borrowers are projected to remain profitable this year, down sharply from 78% in 2023. That drop reflects a mix of pressure points: softer commodity prices, lingering cost inflation, weaker off-farm income in many rural areas, and increasingly erratic weather. For lenders, the result is not only higher exposure to repayment risk but also more complex borrower profiles that require a deeper, more nuanced underwriting approach.
Impacts on Ag Lenders and Lending Strategy
Ag lenders are feeling the squeeze too, with loan growth outpacing deposits. Loan volumes have been growing faster than deposits, driving loan-to-deposit ratios higher and thinning out liquidity cushions. While the average rate on non-real estate farm loans eased by roughly 30 basis points last quarter, it’s still sitting about 80 points above where it was in 2023. For borrowers already operating on narrow margins, even modest rate increases can erode profitability and limit flexibility during the season.
At the same time, production costs are climbing faster than prices, leaving less room to operate. In the first quarter of 2025, farm loans over $500,000 accounted for around 3.5% of new lending activity, a clear sign that producers are financing more complex, higher-cost operations. Equipment upgrades, technology investments, and expanded acreage all come with heavier financial commitments, which require more sophisticated loan structures and better-aligned underwriting.
Lenders are being asked to manage these larger exposures without sacrificing credit quality. Generic loan terms aren’t cutting it anymore. Today’s ag economy demands a new approach to farm loans. Whether it’s adjusting payment timing, structuring multi-tranche credit lines, or layering in risk management tools, lenders need to evolve beyond traditional models to remain viable partners to modern producers.
Strategic Lending: Beyond Traditional Risk Management
Today’s ag lenders are moving away from rigid schedules for terms that actually match a farm’s rhythm. They’re running worst-case budgets, things like late planting or drought, through stress tests to see if farms can still make ends meet. These scenarios aren’t a formality, they show where a borrower could hit trouble, before it happens.
Lenders are rethinking repayment plans. That means tying payments to the crop calendar and adding built-in contingencies for weather setbacks. These adjustments don’t eliminate risk, but they give borrowers a better shot at staying current when margins tighten.
“We don’t just cut checks. We‘re on the farm with clients, dig into their operation,
Tim Jett, Conterra Mid-South and Delta RM
understand the risks and help structure debt so it works with the rest of their plan, not against it.”
Geographic risk is getting more attention, too. Lenders are teaming up with agronomists, crop consultants, and insurance agents to pinpoint the specific threats in different growing regions, whether it’s water availability, soil degradation, or storm exposure. This information is helping shape targeted financial tools, like standby credit lines for post-disaster recovery or specialized loans for infrastructure upgrades that reduce future vulnerability. The aim isn’t just to lend, it’s to keep operations durable over time.
Where Ag Lending Goes From Here
What we’re seeing isn’t just a cyclical bump, it’s a shift in how banks see farm risk. With tighter margins, larger capital needs, and more erratic weather patterns, lenders are adjusting not only how they assess risk but how they define long-term success. Those who treat credit as a relationship, focused on continuity and operational health, are better positioned to serve producers facing complex, long-term pressures.
That shift means rethinking how borrower strength is evaluated. Lenders are starting to factor in climate exposure, not as a compliance checkbox, but as a direct input into loan performance risk. They’re also stepping up in the advisory space, helping clients combine financing with tools like NRCS cost-share programs, state-level conservation incentives, or USDA disaster assistance. When used together, these resources can reduce loan stress and improve outcomes over the life of the operation.
For lenders, the next frontier lies in smarter infrastructure, systems that allow for more precise credit modeling, region-specific strategies, and closer monitoring of borrower health between renewal cycles. Whether it’s using ag-specific analytics, tracking input volatility, or diversifying loan exposure by geography, the goal is staying agile in a farm economy that no longer plays by old rules.
How Lenders Are Changing Course
The uptick in farm debt and rising delinquencies through 2024 and into 2025 hasn’t just raised eyebrows, it’s forced a hard reset for how ag lenders approach their role. Many of the metrics and assumptions that guided underwriting over the past decade no longer reflect the realities of today’s farm economy. Credit strength now hinges on adaptability, responsiveness, and a deeper understanding of operational dynamics.
For lenders, the message is straightforward: products and policies must keep pace with a landscape shaped by compressed margins, unpredictable markets, and rising fixed costs. That means structuring credit to fit real-world revenue cycles, spotting risk before it surfaces, and working with borrowers as partners, not just payers. Stepping in when a season gets rough? That’s exactly why a good lender matters.
The lenders who stick close to the land and adjust when things break will be the ones growers trust most. When farm loans match how farms actually operate, lender portfolios are stronger, and so are rural economies. The path forward isn’t about pulling back; it’s about leaning in with smarter tools and a clearer sense of purpose. Need a loan strategy built around your farming cycle? Conterra’s tailored financing puts producers first. Get in touch now.
At Conterra Ag Capital, we do more than lend, we partner with producers. We work across the country to provide financing that meets the real needs of real operations, whether that means restructuring existing debt, financing new ground, or helping you build long-term equity. Our team is built around relationships, not transactions, because we believe the best financial strategies are grounded in trust, expertise, and a deep respect for agriculture.
Disclaimer: Please note that the information provided in this article is for educational and informational purposes only, and should not be construed as financial or investment advice. While we have made every effort to ensure the accuracy and reliability of the information presented, Conterra Ag Capital and its affiliates make no representation or warranty as to the completeness, correctness, timeliness, suitability, or validity of any information contained in this article. You should always consult a qualified financial advisor, tax professional, or other qualified professional for advice on your specific financial situation.
