About 12K years ago, humans switched from a nomadic lifestyle to established communities, where they developed farming instead of foraging and hunting for food. The reasons for this transition varied — in the Near East, the end of the last Ice Age brought more favorable conditions for growing wild cereals; in East Asia and elsewhere, natural food sources began to dwindle, so humans started growing and raising their own. Whatever the case, the advent of agriculture gave rise to permanent settlements, paving the way for the growth of civilization.The agriculture industry of today has faced many recent challenges, from operating costs rising faster than commodity prices to negative impacts on producers’ revenues due to limited storage capacity, logistical hurdles, and tariff policies.Recent Sentiment in the Ag EconomyThe Purdue University/CME Group Ag Economy Barometer, a nationwide survey of 400 agriculture producers conducted every month to take the pulse of the agricultural economy’s health, has tracked weak farmer sentiment since July. The barometer index was at 146 midsummer and dropped to 126 in October following producers’ concerns over low farm income expectations and a hesitancy to make large operation investments.Farmer sentiment rebounded with a 15-point increase in December, buoyed by a new international trade pact that will increase US agricultural exports and support a rise in crop prices. However, 84% of agriculture producers surveyed are still wary of making further investments in farm operations. Major crop producers are still facing poor profit margins and may carry operating debt into 2026.Because of these conditions, community financial institutions (CFIs) that provide agricultural loans will need to be extra diligent when it comes to agricultural producers who need loans to cover rising operating costs and any operating debt they carry over into the new year. Loan quality may also be impacted by ongoing market and weather uncertainties. The key to portfolio health will be deepening relationships with ag customers to stay on top of individual situations, as well as flexible financing and increased risk management to proactively adapt to changing conditions.The Need for Flexible Products and Services As producers seek more flexible operating loans to cover ongoing costs and investments, CFIs can assist their ag customers by tailoring credit products to accommodate them.For example, Farmers and Merchants Bank in Timberville, Virginia offers its ag customers sweep accounts, in which an operating account and a revolving line of credit will both automatically rebalance every night to pre-established totals. This enables ag customers to save interest while maintaining adequate cash flow. When ag customers can maintain cash flow without a credit line to back it up, the financial institution might offer to set up a money market account to sweep excess funds from the operating account every night, allowing the ag customer to earn a higher interest rate. “Sweeps are more of a commercial Wall Street-type of idea, but we’ve brought Wall Street to Main Street,” says Paul Eberly, Farmers and Merchants’ Chief Development Officer.Choice Bank in Fargo, North Dakota offers Choice Ag Solutions, a digital loan origination platform that enables producers to take out a loan at a retail location, like a co-op, seed, or chemical dealer, with the financing done by Choice Bank. The producer can use their own smartphone, tablet, or computer, or a device provided by the retailer. It’s not only convenient, but it has helped Choice Bank regain revenue it had previously lost to retailers getting into lending.“We are trying to innovate and provide some new forms of capital,” says Todd Borchardt, President and Chief Ag Credit Officer at Choice Bank. “We began to think: How do we be that capital source?”The Importance of Relationship Building and Risk Management Strong relationships and ongoing advisory roles are fundamental, as is using new risk tools and fostering closer collaboration with crop and insurance professionals. Ag lenders are moving beyond standard loan terms, with payment plans now tied to crop calendars and stress-tested for weather or market shocks.For example, more CFIs are considering deploying geospatial intelligence systems to better map and understand each loan within their ag portfolios, so they can predict potential risks from severe weather events or changing environmental conditions. Sharing information with borrowers can also help them better manage their risks — and earn more of their loyalty.Indeed, now is an excellent time to double down on building and strengthening relationships with ag customers to pave the way for success in improved market conditions. A few examples of activities CFIs can engage in:
- Attend events like field days, producer conferences, kids’ FFA auctions, land auctions, and county fairs.
- Schedule regular check-ins and farm visits.
- Host events with ag retailers and other trusted advisors such as crop consultants, agronomists, attorneys, auctioneers, and extension agents.
- Post policy updates, market trends, or general education topics on your website that can help your ag customers.
This year will be especially challenging for ag producers. Regional and crop-specific risks, including climate exposure, are shaping credit decisions and support offerings. CFIs should focus on flexible and individualized solutions, integrated risk management, and regular communication to better understand individual circumstances and help farm customers thrive through uncertainty.
