If you’re a farmer or rancher exploring agriculture loans to expand your operations or even to refinance existing debt, it’s important to understand the challenges lenders are anticipating in 2025 so that you can plan your approach and secure the funding you need.
The bottom line: Lenders anticipate a challenging year and are clamping down by tightening underwriting standards and loan terms for both farm land loans and agricultural production loans.
Increasing interest rates can raise operating costs for farmers and make financial management more difficult.
Global demand shifts and income impact
The demand for US agricultural goods declined globally in 2024, causing a significant drop in commodity prices. This has directly impacted US farm incomes, which are projected to fall by 7% to $154 billion — marking the second year of decline. This reduction in income is souring the outlook for many lenders as they prepare for tougher times ahead.
Survey insights on underwriting and loan terms
The latest joint ABA-Farmer Mac 2024 Agricultural Lenders Survey reveals the shifts in agriculture underwriting and loan terms over the past year and what lenders anticipate for the upcoming year.
Trends in underwriting and loan terms for farmland
- In the past year: A substantial 80% of lenders tightened underwriting standards for farmland, with 19% seeing no change and only 1% experiencing easing. Similarly, 82% of lenders implemented stricter loan terms, while 17% reported no change and 1% noted an easing.
- Expectation for the next 12 months: A majority (58%) of lenders anticipate further tightening of underwriting standards for agriculture loans, with 41% expecting no change and 1% predicting easing. For loan terms, 63% of lenders foresee continued tightening, 35% expect no change, and 2% anticipate easing.
Trends in underwriting and loan terms for agricultural production
- In the past year: 70% of lenders tightened underwriting standards for agricultural production loans, while 30% reported no change. 74% of lenders implemented stricter loan terms, with 26% seeing no change.
- Expectation for the next 12 months: 56% of lenders anticipate further tightening of underwriting standards, and 44% expect no change. For loan terms, 54% foresee continued tightening, 44% expect no change, and 2% anticipate easing.
Overall, the survey indicates that it will be harder to get loans for both farmland and agricultural production in the coming year, as lenders are likely to be more cautious and require stricter terms. While most of them anticipate similar or slightly less restrictive conditions compared to the past year, the overall sentiment remains cautious and reflective of the evolving agricultural lending landscape.
Tighter lending criteria on the horizon
Lenders are particularly worried about liquidity and farm income levels — these have topped their list of concerns for four years running. While inflationary pressures were also a concern, the slight pullback in input prices has eased those worries a bit.
However, the primary focus now shifts to the deteriorating credit quality. Due to factors like carryover crops, low commodity prices, and high production costs paired with rising interest rates, lenders anticipate a noticeable decline in loan performance by mid-2025.
As a response, expect tighter underwriting standards and loan terms. About two-fifths of lenders have plans to tighten underwriting criteria for loans secured by farmland, and more than half will do the same for agricultural production loans. This means you’ll need to be well-prepared and perhaps seek ways to enhance your creditworthiness before applying.
How rising interest rates could affect farmers in 2025
Interest rate volatility continues to be a significant worry, especially since rates have been high. The advice from lenders is clear: if you didn’t turn a profit this past year, managing your interest expenses will be critical to regain profitability.
Although there’s an expectation that rates might decrease within the next year, this remains uncertain until more definitive actions are taken by financial authorities.
Despite recent Federal Reserve cuts to short-term interest rates, the broader market is driving mid- and long-term rates higher due to inflation fears. According to analysts, the two-year break-even inflation rate has spiked significantly, reflecting renewed concerns about inflation. While the Federal Reserve can influence these longer-term rates, it cannot control them outright. The evolving market conditions suggest that rates might return to levels seen in the 1990s and early 2000s — but that this path could be marked by significant volatility.
Real rates on the rise
According to a lead economist from the National Corn Growers Association, the 10-year Treasury rate has recently climbed from 3.63% to 4.21% — an increase that is primarily driven by market expectations that the Federal Reserve may slow down its rate cuts. Recent positive economic indicators have eased recession fears and boosted confidence in the US economy, pushing real interest rates higher independent of the Fed’s actions.
The association points out that while the Federal Reserve’s adjustments to the Fed Funds Rate can affect the interest rates charged to farmers, consumers, and businesses, the actual rates paid include additional costs determined by factors like the borrower’s credit score and the specific terms of the loan credit scores and loan specifics.
The impact on agricultural economics
As a farmer, whether you’re raising livestock or growing crops, the interest rate landscape directly affects your financial stability and planning. A recent survey of agricultural economists revealed that a 2% decrease in farm interest rates could help stabilize the economic situation for farmers. However, the reality is that rising interest rates are increasing operational costs (notably in areas like grain storage) and complicating financial management (especially when it comes to handling loan repayments).
Analysts are ringing alarm bells about potential threats to agricultural economic stability, driven by confusing economic signals and a steepening yield curve. Positive indicators — such as the healthy 2.8% growth in real GDP over the summer coupled with a relatively low inflation rate of 1.8% — are overshadowed by a ballooning federal deficit, which has approached 7% of GDP.
There’s also growing concern that long-term interest rates are climbing, largely due to market unease about the government’s ability to manage its finances sustainably. If the incoming administration does not directly address the deficit and instead prioritizes tax cuts and subsidies, it could force the Federal Reserve to step in more aggressively. This could involve the Fed taking measures to reduce the deficit or even monetize the debt — strategies that could have broad implications for farming businesses.
It’s clear that maintaining fiscal prudence and making necessary economic adjustments are essential to support ongoing growth and keep inflation in check. As a farmer, staying informed and prepared for these economic shifts will be key to navigating these uncertain times and ensuring the sustainability of your agricultural operations.
Consider developing a detailed budget to track expenses and income. You can also implement risk management strategies such as crop insurance and hedging to protect your revenue.
If you’re exploring financing options, consider alternative financing sources such as farm credit programs or government-backed loans. Take the time to shop around for the best interest rates and loan terms.
The good news is that many agricultural lenders are also farmers like you and understand the cyclical nature of this business. They are committed to working closely with borrowers through these turbulent times, which means maintaining open communication and being proactive in managing your financial health could help you navigate through 2025 more effectively.
Secure your farm’s future with flexible agriculture loans from Private Capital Investors
The coming year may be challenging for farming operations, making flexible access to capital even more crucial. Private Capital Investors can offer practical and straightforward financial solutions tailored to your farm’s specific needs — whether you’re looking to stabilize finances, expand your acreage, or diversify your business.
We offer agriculture loans and farm loans ranging from $3 million to $50 million across the United States, including key agricultural areas in Miami, Denver, Massachusetts, Phoenix, and Texas.
Enjoy interest rates as low as 7% to make your financial planning more affordable.
You can count on quick approvals and funding in as little as 14 days, so you can move fast when opportunities arise.
Our agriculture loan services include:
- Loans for both full-time and part-time agricultural activities
- Financing for purchasing new farms or expanding existing land
- Options for traditional acquisitions and opportunity purchases
- Funding for recreational activities like fishing
- Other farm loan types (including hobby farm loans, cattle loans, orchard loans, and more)
With a minimum credit score requirement of 680, we provide solutions that respect the financial realities of farmers and ensure that our solutions are accessible to borrowers across different stages of business. We understand the unique needs of farms. Our team prides itself on excellent customer service and common-sense underwriting to ensure that you receive support that matches your specific circumstances and long-term farming goals and objectives.
Don’t let uncertainties in the agricultural economy hold you back from expanding your operations, investing in new farming technology, purchasing additional land, or improving your crop diversity. Contact Private Capital Investors and tell us about your plans to get personalized financing from a leading private commercial lender who knows how to help you thrive.
