The Financial Health of Agricultural Lenders

Considering the financial status of agricultural lenders has become important to determine the underlying financial and economic fundamentals of the agricultural production sector in the US. The current agricultural production system uses around $2.3 trillion of assets, 9.1% of which is funded by debt. The agricultural sector's debt is generally used to fund operating needs such as supplies and agricultural inputs, intermediate lived capital purchases such as equipment, and the purchase of long-lived capital assets. Agricultural lenders' current financial condition is largely dictated by the quality of their balance sheet, profitability, and cash flow. One way to assess agricultural lenders' ability to respond to a rise in net loan chargeoffs is to analyze the loan loss reserves coverage ratio calculated by dividing loan loss reserves by nonaccrual loans. The value of the ratio has declined since 2003, indicating that non-accrual loans are increasing faster than loan loss reserves.