MT. JULIET, Tenn. (DTN) -- Demand for non-real estate farm loans grew at the fastest pace since 2016 during the first quarter of 2025, according to the Federal Reserve Bank of Kansas City, as stagnant commodity prices and stubborn input prices limited the ability to self-finance.

"Weak crop prices over the past year contributed to lower farm incomes, a decrease in loan repayment rates, and an increase in renewals and extensions," wrote Ty Kreitman and Morgan Mastrianni, ag economists at the Kansas City Fed. "Tighter farm finances also led to growth in loan demand and lenders reported steady increases in collateral requirements."

Bankruptcies are rising in some places, such as Arkansas, but for the most part, bankers report only a modest uptick in delinquency rates. The KC Fed's Agricultural Credit Survey found that delinquency rates remain below 2%.

Ryan Loy, an extension economist for the University of Arkansas System Division of Agriculture, said in a news release that Chapter 12 bankruptcy filings in the first quarter of the year have already surpassed the total number in 2024, at 259. A Chapter 12 bankruptcy allows a farm to reorganize and propose a plan to pay off its debt. Introduced in the 1980s, it's an alternative to Chapter 7 bankruptcy, which requires liquidation.

"Once you see this on a national level, it's a clear sign that financial pressures that we saw before in 2018 and '19 are kind of reemerging," he said.

In 2019, he said there were 599 Chapter 12 filings across the United States. By 2021, that number declined to 276.

"That drop was due in part to some of that pandemic-related assistance and stronger commodity prices at that time," Loy said.

Arkansas farmers have been hit particularly hard. In the 2010s, the state's farmers accounted for 20-to-22% of national Chapter 12 filings. That dropped to near 5% post-pandemic but climbed to more than 30% in 2024 and is at nearly 27% in the first quarter of 2025.

"I would suspect that we're going to probably outpace or at least be right on the margin of what 2024 looked like," Loy said.

While financial pressure may be rising for farmers, it has not spread to commercial farm banks, according to the Farm Bank Performance Report by the American Bankers Association. The report states that despite continued challenges from global uncertainty and lingering supply chain disruptions, farm banks posted solid financial performance, improved asset quality and increased lending.

Farm banks issued $115.1 billion in agricultural loans in 2024. Farmland-secured lending rose 4.7% to $65.9 billion, while agricultural production loans climbed 8.9% to $49.3 billion.

In addition to growing their book of business, the report highlights increased equity capital and Tier 1 capital, along with strong profitability. More than 97% of the 1,398 farm banks reported profits in 2024, with nearly half also reporting earnings growth.

"The next 12 months will test agricultural resilience once again," said Ed Elfmann, ABA's senior vice president of agricultural and rural banking. "But America's farm banks are ready, willing, and able to meet the credit needs of producers through any cycle."

Arkansas bankruptcy details: https://www.uaex.uada.edu/…

American Bankers Association Farm Bank Performance Report: https://www.aba.com/…

Recent Kansas City Fed survey results:

https://www.kansascityfed.org/…

https://www.kansascityfed.org/…

Katie Dehlinger can be reached at katie.dehlinger@dtn.com

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