Rising Farm Debt Raises Questions About Agricultural Lending

U.S. farm sector debt is expected to reach a record $605.1 billion in 2026, according to the latest USDA forecast. That represents a 4.5% increase in nominal dollars from 2025 and a 1.5% increase after adjusting for inflation.

The numbers help tell the story of the financial pressures facing farmers.

“Farm real estate debt is expected to reach $399.0 billion in 2026, a 4.6% increase in nominal dollars (a 1.6% increase in inflation-adjusted dollars),” USDA’s Farm Income Team wrote. “Farm non-real estate debt is expected to reach $206.1 billion in 2026, a 4.4-percent increase in nominal terms (a 1.4% increase in inflation-adjusted dollars).”

The USDA also forecasts that the farm sector’s financial position will weaken in 2026 compared with 2025, as debt grows faster than assets or equity.

RELATED: Why one economist says you can’t compare current economic challenges with the 1980’s farm crisis.

What Is the Future of Agricultural Lending?

So, how could these trends affect agricultural lending in the coming months?

A recent report from the Federal Reserve Bank of Minneapolis offers insight into what lenders are seeing as farmers navigate financial uncertainty and borrowing needs.

The bank, which serves the Ninth Federal Reserve District, surveyed 84 bankers across Montana, North Dakota, South Dakota, Minnesota, northwestern Wisconsin, and Michigan’s Upper Peninsula. The survey examined regional loan demand, credit standards, and deposit activity.

Authors Erik Beishir and Cason Ringgenberg outlined several trends in agricultural borrowing, including concerns about profitability, uncertainty over commodity prices, and the outlook for farm lending.

“Loan demand grew modestly in the Ninth District between April and June this year. Most bankers reported only small shifts in borrowing activity. However, agricultural lending, particularly for row crops, emerged as a concern.”

Reduced borrowing for farmers and ranchers

Several respondents identified factors that could reduce borrowing in the months ahead, including uncertainty about commodity prices, input costs, and farm profitability. Broader economic concerns also played a role, including the ongoing conflict in the Middle East and its potential ripple effects on businesses and consumers across the district.

On the funding side, bankers reported increased competition for deposits from credit unions and non-traditional financial institutions. Financial technology firms and online-only banks are working to expand their customer bases, putting additional pressure on traditional banks.

Despite that competition, overall deposits remained stable. Seventy-three percent of bankers reported maintaining or slightly increasing their deposit levels during the survey period.

How Is Agricultural Loan Demand Changing?

The report also examined how bankers expect loan demand to change over the coming year.

Agricultural loan demand shifted more noticeably: 20% of bankers saw an increase in ag lending, and 16% saw lower demand.

The mixed results reflect the different financial circumstances facing agricultural operations.

One banker explained that strong cattle prices and sales had reduced some producers’ need to borrow:

“Strong cow/calf operations are borrowing less. This has caused a decrease in our ag lending due to the borrowers being able to liquidate small amounts of cattle to operate without borrowing.”

For lenders experiencing changes in loan demand, the report pointed to shifting economic expectations in both agricultural and consumer lending.

Overall, bankers expressed cautious optimism about the year ahead. Forty-one percent anticipated moderate loan demand over the next 12 months, while 40% expected demand to remain steady. Expectations varied by lending category, however.

Agriculture was expected to see some of the strongest growth in borrowing. Thirty-five percent of respondents anticipated increased agricultural loan demand, reflecting continued investment in farmland and farming operations despite ongoing uncertainty.

Lending standards and credit quality

As farmers prepare for another year of financial uncertainty, lenders are also watching the quality of agricultural loans.

One banker described how financial pressures could affect operating loan renewals heading into 2027:

“Stress in the ag sector will result in operating loan renewals heading into 2027 being more closely scrutinized.”

The report found that 41% of respondents identified the potential for declining agricultural loan quality as a concern.

RELATED: This Kansas City Federal Reserve Bank Senior Vice President explained why some agriculture states face greater risk than others during this conversation with American Farmland Owner in May.