In an interview with Farm Director KC Sheperd following the recent American Bankers Association (ABA) Agricultural Bankers Conference, Ed Elfman confirmed that the U.S. agricultural economy is facing a significant downturn. While key sectors like livestock and poultry are performing well, row crop producers are experiencing acute financial stress.
Ed Elfman, Senior Vice President of Ag and Rural Banking Policy for the ABA, confirmed the overall sentiment following the conference. “The biggest takeaway is we’re seeing that the ag economy is trending in the wrong direction,” Elfman said, noting that this negative trend has started in the South and is now “creeping north” into the Upper Midwest.
The cause is a classic margin squeeze: “Nobody has a real clear answer outside of: inputs are up, commodity prices are down, margins getting squeezed.”
Loan Renewals and the Interest Rate Climate
While the overall discussion focused on the financial health of the sector, interest rates are not the primary concern they once were. Elfman highlighted that the ACRE Act (part of the recent tax bill) is already helping to lower interest rates for some borrowers.
However, a more pressing issue for lenders and borrowers alike is the approaching wave of loan renewals tied to the ultra-low rate environment of a few years ago.
“What we are talking about on the interest rate side is… we’re going to have a lot of loan renewals start to come up. A lot of five to seven-year notes that are going to start coming due.”
This looming financial adjustment necessitates immediate action from producers. The ABA’s strongest advice centers on proactive communication.
“We always say this: communicate with your lender. Don’t wait until the last minute to go in and have the conversations… Get yourself set up so you’re ready for that whatever might be coming down the pike.”
Missing Pieces in Federal Policy
The conversation also underscored the urgent need for a complete Farm Bill. Elfman noted that while a tax bill extended about 60% of the long-term Farm Bill’s provisions, critical pieces remain missing.
“The Credit Title was not part of that discussion, Rural Development was not part of that discussion.”
The ABA’s primary lobbying focus is on the Credit Title, specifically pushing for increased loan limits within the Farm Service Agency (FSA) guaranteed loan programs for both Farm Ownership and Farm Operating loans.
“We need those higher loan limits, hopefully get to $3.5 million on Farm Ownership, $3 million on Farm Operating, because… farmers are going to be utilizing those programs more than they have in the past, and we need the flexibility there.”
Support for Beginning Farmers
Another key priority for the ABA is addressing barriers to entry for beginning farmers. Policies currently make it significantly easier for a farmer’s direct descendant to obtain a loan than for a qualified individual outside the immediate family.
“We want to knock down some of those barriers, make it easier to get loans through USDA, and then hopefully have a new generation of farmers that can get up and running.”
While downturns are difficult, Elfman acknowledged they also “present opportunity for people who might want to get in as well.”
The Final Advice: Talk to Your Neighbors
Beyond financial planning, Elfman stressed the importance of mental health in a difficult economic climate. The advice to producers extended beyond their balance sheets.
“From a mental health standpoint, go talk to other producers as well. You’re not the only person in that boat. Other people are struggling as well. Make sure you’re looking out for your friends and neighbors.”
On an encouraging note for the industry’s future, the conference saw a strong turnout of young professionals, with an “under 30 crowd” showing up to learn. Elfman concluded that this “new crop of agricultural bankers” suggests the future of ag banking is looking strong.
