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U.S. farm banks’ business is booming

Reuters / U.S. agricultural banks boosted farm lending by about 14 per cent in 2012 to $81.8 billion, reflecting a strong farm economy despite drought-related stress in the livestock and dairy sectors, the American Bankers Association said on March 19.

“The agricultural sector continues to outperform the broader national economy and, as a result, farm banks posted solid performance in 2012,” the ABA said in its Farm Bank Performance Report.

It cited a U.S. Agriculture Department forecast for near-record 2012 U.S. net farm cash income of more than $133 billion on the strength of high commodity prices and increasing global demand for food.

“This has translated into a solid performance on the part of our nation’s farm banks. Farm banks reported a strong increase in earnings and improved asset quality in 2012. In addition, farm banks, as a group, remained well capitalized through 2012,” the ABA said.

The main competition for private banks in lending to farmers and ranchers remains the giant Farm Credit System, a government-linked nationwide network of co-operative banks which dates from the early 20th century.

Farm Credit assets total more than $245 billion. The ABA said the nation’s 2,215 farm banks added more than 3,615 jobs in 2012, a 4.2 per cent increase, and employed 90,569.

More than 95 per cent of farm banks were profitable last year, with 67 per cent reporting an increase in earnings. Income before taxes and extraordinary items totalled $3.6 billion, up 7.4 per cent.

The non-performing-loan ratio declined to 1.49 per cent of total loans, close to pre-recession levels, it said. “Farm real estate loans grew at a faster rate than farm production loans. Outstanding farm production loans grew at a pace of 13.7 per cent, or $4.8 billion, to a total of $40.0 billion. Farmland loans rose by 14.0 per cent, or $5.1 billion, to $41.8 billion,” the ABA said.

Farm business balance sheets improved due to strong farm income and the continued appreciation in farmland values. The farm debt-to-asset ratio is projected to fall 40 basis points to 10.2 per cent in 2013.

This would be a new historical low, confirming the strength of the farm sector’s solvency, the association said.

“The continued growth in farm loans demonstrates the important role banks play in the success of farms and ranches both large and small,” said John Blanchfield, senior vice-president and director of ABA’s Center for Agricultural and Rural Banking.

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