Lending among the farm sector hit historic lows a couple of years ago, but that trend has reversed with farmers’ borrowing on the rise.
Slim profit margins, driven by decreased commodity prices and higher input costs, have left the agricultural sector with less cash, according to economists.
“There’s not a ton of money to go around farmers right now,” said Anna Morrell, a farmer who raises poultry, eggs and produce. “With federal freezes and tariffs, I’m not quite sure how we’re all going to fare.”
Even though Morrell isn’t currently financing any projects on the farm, she worries it’s a sign of tougher times ahead, especially for younger farmers, and the economic conditions pressuring her industry could require more farmers to take on more debt.
“Even in the best of times, the profit margin is so slim,” said Morrell, who is also the president of Central Illinois Young Farmers Coalition.
Non-real estate farm loans increased 25% last year, and other data suggests that trend will continue into 2025. However, while not all agricultural economists believe the increased levels of borrowing by farmers is immediately problematic, there remains a level of uncertainty given President Donald Trump’s back-and-forth trade agenda.
“The concern would be if this type of environment, meaning reduced profit margins, persists for some amount of time — a year, two years, three years — you could envision some scenarios where it does lead to more financial stress,” said Nate Kauffman, the branch executive of the Omaha Office of the Federal Reserve Bank of Kansas City.
What led to these conditions?
The prices of major American commodities, like corn, wheat and soybeans, have largely all been trickling down since spring 2022.
For example, Soybeans carried a value of $17.69 per bushel, but they have since dropped to $10.51, according to Business Insider.
Coupled with elevated input costs for things like farm equipment and fertilizer, farmers are being pinched.
“It makes it really tough,” said Tait Berg, a farmer and an economist with the Federal Reserve Bank of Minneapolis. “There's a squeeze on both sides of the equation.”
In turn, farm income across the United States subsequently decreased over the last couple of years. In 2022, farmers made nearly $198 billion. That slid down to $142 billion in 2024, according to the USDA.
When the agricultural economy does well, demand for farm loans goes down. When the farm economy struggles, farm loan demand goes up, Berg said.
“They're kind of reversing, if you will,” Berg said. “After several years of really good farm income, we're seeing it lower, and we're seeing farm lending increase.”
Nearly two-thirds of bankers surveyed in the upper Midwest and Montana reported increased loan demand this year, according to the Federal Reserve Bank of Minneapolis.
It’s not an uncommon trend in agriculture.
Between 2016 and 2019, the U.S. agricultural sector saw similar conditions. It might have even been a little bleaker then because livestock prices had also declined, Kauffman said.
Currently, beef prices are quite high — trading at $2.15 per pound, according to Business Insider.
With the cost of grain having depreciated so much over the last three years, feed for livestock has been relatively affordable, which is why the beef market has been robust, Kauffman said.
“The financial picture has still been relatively strong, but we are monitoring the pace of debt increase, alongside the tighter profits,” Kauffman said of the farm economy.
There remain other factors that leave economists optimistic despite the uptick in debt usage: Data shows that farmers are still able to make their loan payments.
“The debt levels look high, but your underlying asset values are also high,” said Roger McEowen, a professor of agricultural law and taxation at Washburn University School of Law in Kansas. “Those have not deteriorated, which means you still have the ability to pay your debt for the U.S. farm sector as a whole.”
Land values, which make up a big chunk of most farmers' assets, are strong. In 2024, the value of U.S. farmland grew 5% and it averaged $4,170 per acre, according to the USDA.
What's ahead for farmers?
The big unknown in this equation will be how much President Trump’s tariffs increase the cost of production on things like fertilizer and farm equipment.
Morrell said she’s been able to hold the cost of her pasture-raised, non-GMO-fed eggs at $6 per dozen since 2021. However, that may need to change.
While she feels fortunate to not be financing any projects on the farm right now and she’s insulated more from the impact of tariffs given that her products aren’t exported, Morrell said she’s had conversations with colleagues who are worried about making loan payments.
“There's a mental health epidemic with farmers as well,” Morrell said. “This is not good. This is not good for farmers.”
As of now, most farmers have been able to make their payments. Delinquency rates did creep up last year to above 1% — but from historic lows — the Federal Reserve Bank of Kansas City reported.
The same could be said for bankruptcies, which increased last year, but also from record low figures, according to the U.S. Farm Bureau.
Two other key ratios watched by agricultural economists show farmers can still pay their loans, McEowen said. The current ratio, a farmer's ability to make loan payments, remains strong. So, too, does the debt-to-asset ratio, a measurement of the strength of a farmer’s portfolio.
“The farmer's ability to repay the debt has not softened at all,” he said.
McEowen believes there’s a good chance farmers are making a bet that economic conditions could improve later this year. He’s anticipating pressure from tariffs could lead to trade deals for grain with Europe or beef with Australia, which would spike demand for American farm products.
As of February, USDA forecasters predict farm income will increase this year.
“They're not necessarily incurring more debt because they're behind on things,” said McEowen, who also farms himself. “They're borrowing because they're anticipating greater investment and sales later on.”
This story was produced in partnership with Harvest Public Media, a collaboration of public media newsrooms in the Midwest and Great Plains. It reports on food systems, agriculture and rural issues.
