Agricultural Banks

Business for Sale Industry Economics




Projected CAGR

2003 - 2019


2019 - 2025






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The Agriculture Banks business is expected to grow over the next five years through 2019, as a stressed agricultural sector adds to its debt burden. Farm revenues have been dropping since 2014 as a consequence of prolonged drought, illness, shifting commodity prices, and retaliatory Chinese tariffs.

As agricultural operators battled to make ends meet, agricultural banks provided lifelines in the form of short-term loans and debt refinancing. The sector has benefitted from an increase in lending activity. Over the five years to 2019, research predicts industry sales to expand at an annualized rate of 2.4 percent to $15.7 billion, with a forecast rise of 0.3 percent in 2019.

Agricultural banks have gradually protected themselves from market risks by continually raising capital reserves, in addition to lending to struggling agricultural producers. Capital reserves, which are made up of the owners’ equity and retained profits, allow banks to absorb future losses and reduce their risk exposure to a number of risk factors.

Agricultural banks have also improved the overall quality of their loan portfolios since the average number of nonperforming loans has fallen over the last five years. As a consequence, agricultural banks are predicted to make a profit of 9.0 percent of revenue in 2019.

Due to a shifting interest rate environment and the predicted continuance of agricultural sector challenges, the Agricultural Banks industry is predicted to develop at a slow pace during the next five years, through 2024. A rise in interest rates is expected, allowing agricultural banks to improve their net interest margin but simultaneously increasing the cost of borrowing for the agricultural sector and limiting overall credit availability.

However, a drop in loan quantities is projected to be countered by increased profitability among existing loans. Overall, these developments are projected to be favorable to the Agricultural Banks business. Over the five years to 2024, research predicts that industry sales will grow at a 0.7 percent yearly pace to $16.3 billion.

Research forecasts market sales to rise at a 2.4 percent annualized pace to $15.7 billion over the next five years, with a 0.3 percent boost in 2019.


As a consequence of the rising demand for short-term loan products, the Agricultural Banks business has grown somewhat during the last five years. Agricultural revenue declined in the first half of the five-year period due to shifting commodity prices. As a result, as agricultural producers struggled to fund their operational expenditures in 2015 and 2016, demand for short-term loans and debt restructuring surged significantly.

However, since agricultural prices have leveled off, demand for short-term loans has leveled down as well. Overall, research expects revenue in the Agricultural Banks business to grow at a 2.4 percent annualized pace to $15.7 billion in the five years to 2019, with a 0.3 percent gain expected in 2019.

During the first half of the five-year period, external variables such as weather, illness, and increased imports resulted in significant supply and demand mismatches for agricultural goods. In 2012, a hot wave brought on by the La Nina weather trend, along with lower-than-expected snowfall, resulted in severe drought throughout the North American continent.

Crops in the Midwest and Plains of the United States were wiped off by the 2012-13 North American drought, which saw water supply levels drop to historic lows. The drought impacted over 81.0 percent of the contiguous United States, according to the National Drought Mitigation Center and the United States Department of Agriculture (USDA).

As a result of the undersupplied market caused by poor agricultural production outputs, agricultural prices soared to all-time highs in 2013 and 2014. The agricultural price index, which is a comprehensive gauge of the price paid for livestock and crops, grew 3.4 percent to a record high index of 110.6 in 2014, up from an index of 80.8 only five years earlier in 2009.

Agricultural producers increased output in late 2014 and early 2015 as drought conditions alleviated and the agricultural price index stayed around record highs. In the meanwhile, high prices for particular agricultural items encouraged international exporters, resulting in a flood of imports. Finally, a glut of agricultural goods led to a sharp drop in the agricultural price index is 2015, which fell 9.6% from 2014 levels.

As a result, agricultural producers got less compensation for their products and struggled to fulfill their operational costs for the season. As a result, they resorted to agricultural banks for short-term loans to fund current operational expenditures. In the five years leading up to 2019, short-term loans intended to meet current operational expenditures overtook farm real estate loans as the second most prevalent loan in the agricultural banking business.

In 2015 and 2016, industry revenue, calculated as the sum of net interest income and total noninterest income, climbed significantly as demand for short-term loans surged. In 2015 and 2016, when the agricultural price index fell 9.3 percent and 10.3 percent, respectively, industry revenue grew 5.3 percent and 4.5 percent. Furthermore, since banks were able to charge higher rates on short-term loans, industry profit increased from 7.4 percent in 2015 to 8.6 percent in 2016.

In the five years leading up to 2019, the Agricultural Banks industry has concentrated on improving the quality of its loan portfolios and accumulating equity capital in order to hedge against possible loan defaults and other potential risks posed by various external factors affecting the agricultural sector. The term “equity capital” refers to a bank’s invested capital, which is often represented by ordinary and preferred shares, as well as retained profits.

In general, when a bank’s equity capital grows, it becomes better positioned to absorb future loan default losses since it may utilize its capital reserves to fund operational expenditures. Agriculture banks have been progressively expanding their capital reserves for decades, owing to the agricultural sector’s historically high volatility.

Agricultural banks have improved the quality of their loan portfolios, as assessed by a drop in nonperforming loans (non-accruing loans that are 90 days past due) throughout the five-year period, in addition to raising capital reserves. The lower amount of nonperforming loans indicates that lenders are becoming more cautious in their lending policies.

Despite the fact that nonperforming loans have dropped on average over the last five years, early delinquencies, or missed or late loan payments, have been steadily growing since 2015. The minor increase in early delinquencies over the last several years is mostly due to lower profitability among agricultural businesses, as drought, wildfires, and fluctuating commodity prices continue to put pressure on particular agricultural businesses.

According to the 2017 ABA and Farmer Mac Lender Survey Report, an estimated 79.0 percent of agricultural farmers experienced lower farm profitability in 2017. Despite being less than ideal, farm profitability has improved since 2016, when an estimated 90.0 percent of respondents said their farms were losing money.

Although the Agricultural Banks business has done well in the five years leading up to 2019 (in terms of both profit margin and revenue), the business has shrunk operationally. However, the gradual drop in businesses is not due to bank failures (which have been uncommon over the last five years), but rather to banks failing to fulfill the Federal Reserve’s minimum agricultural lending ratio.

The Federal Reserve’s minimum farm loan ratio was 18.3 percent as of May 2018, indicating that a bank must have at least 18.3 percent of its loans be farm loans, including farm real estate loans, in order to be designated as an agricultural bank. As a result, banks that no longer fulfill the Federal Reserve’s farm bank categorization standards are principally to blame for the steady decline in agricultural bank companies.

Commercial banks like Bank of America and Wells Fargo are among the top agricultural lending institutions in terms of dollar volume, but their agricultural loan percentages are less than 1.0 percent. Taking these considerations into consideration, research predicts that the number of industrial firms would decline by 2.6 percent annually to 1,645 agricultural banks by 2019.

Furthermore, when several agricultural banks are reclassified as commercial banks, the number of workers in the business is projected to decrease. During the next five years, industry employment is expected to decline by 0.3 percent annually to 86,285 workers.


The Agricultural Banks sector is predicted to develop at a slow pace over the next five years, as its clients battle to keep their businesses viable, resulting in mixed outcomes for the sector. Farm revenues are predicted to be squeezed in the future years due to forecast increases in fuel prices combined with decreased government subsidies.

Farmland prices, on the other hand, are likely to continue to rise, encouraging agricultural producers to utilize their property as collateral for loans. Furthermore, an expected rise in the prime rate would help industry operators by allowing them to broaden the spread of their net interest margin. Over the five years to 2024, research predicts industry sales to grow at an annualized pace of 0.7 percent to $16.3 billion.

In the five years leading up to 2024, net farm earnings are predicted to continue to decline. Net farm income (a long-term measure of farm performance that includes depreciation and inventory values) and net cash farm income (which reflects a farmer’s take-home pay) have been dropping since 2014, according to USDA statistics, and are predicted to continue dropping in the future years.

Due to a projected rise in production costs and an anticipated drop in direct payments, research expects both net farm income and net cash farm income will continue to shrink.

Given the critical significance of farm machinery and equipment in the production process, agricultural producers are especially sensitive to growing fuel prices among diverse agricultural production expenditures. The oil and natural gas price index is expected to rise at an annualized pace of 1.2 percent over the next five years, according to research, further compressing agricultural producers’ profit margins.

Furthermore, according to the USDA’s August 2018 farm income forecast, direct government payments are expected to fall by 17.4 percent from 2017 levels as payments from the Agricultural Risk Coverage and Price Loss Coverage programs decline due to reduced direct payment coverage first stipulated in the 2014 Farm Bill and continued in the 2018 Farm Bill.

Given the bleak outlook for the agricultural sector, industry operators can anticipate continued demand for agricultural loans as farmers resort to banks to meet operational costs. Short-term loans and debt refinancing, in particular, are expected to continue to account for a significant share of industry income in the future years.

Banks’ net interest margins will expand as the Federal Reserve increases interest rates in the coming years, and the sector will gain from more lucrative loans. Higher interest rates allow banks to charge higher lending rates while maintaining or progressively raising deposit interest rates. As a result, higher interest rates enable banks to earn more interest revenue and so increase their potential profitability.

The prime rate is expected to rise from 5.3 percent this year to 5.4 percent in 2024, according to research. However, macroeconomic variables such as inflation, unemployment, and capital market performance influence both the rate of interest rate increases and their magnitude. Additionally, when interest rates increase, financing for agricultural enterprises will become more costly.

Overall, access to credit is likely to be reduced, though to a little degree, as borrowing costs rise. Access to credit is expected to diminish in the coming years as borrowing costs rise, according to research. Overall, access to credit is predicted to rise at a 3.4 percent annualized rate between now and 2024, down from a 5.5 percent annualized rate in the preceding five years.

Higher interest rates will disincentivize borrowing among smaller agricultural companies or those with minimal assets to use as collateral, despite the fact that they are not an immediate danger to industry operators. In the end, a rise in the prime rate will be beneficial to the Agricultural Banks business. In 2024, industry profit is predicted to account for 9.1% of total sales, up from 9.0% in 2019.

The Agriculture Banks business is projected to have mixed outcomes as the agricultural economy becomes more stressed. Loan volumes are likely to rise as agricultural producers struggle with profitability; yet, lower farm profitability raises the possibility of early delinquencies and defaults. As a consequence, the bulk of industry measures are expected to rise slowly during the next five years, through 2024.

Over the next five years, industry revenue, enterprises, employment, wages, and value-added are all predicted to expand by less than 1.0 percent, while industry establishments are predicted to grow by an annualized 0.4 percent to 8,275 sites.

Over the next five years, industrial companies are expected to grow at an annualized rate of 0.2 percent, to 1,660 banks, while industry employment is expected to grow at an annualized rate of 0.4 percent, to 88,203 people. Agricultural banks are expected to increase their physical presence in order to gain market share and diversify their loan portfolios across different agricultural businesses.

Foto Ag43 2


This industry’s operators focus on lending to the agriculture sector. Agriculture accounts for at least 18.3 percent of the total loans made by banks in this sector. The Agricultural Banks business has reached the end of its economic life cycle, which is marked by continuous firm consolidation, a slowing of sector-specific technology advances, and downstream customer acceptance of the sector’s services.

In the ten years leading up to 2024, industrial value added (IVA), which represents an industry’s contribution to the broader economy, is predicted to grow at an annualized rate of 1.1 percent. During the same time period, the US economy is expected to expand at a pace of 2.2 percent on an annualized basis. According to these estimates, the industry’s portion of the domestic economy is predicted to stay stable.

Since 1999, the industry of Agricultural Banks has been steadily consolidating. The agricultural banking business is heavily concentrated in two geographical areas, with the major agricultural banks looking to extend their reach and compete with both internal and external lending institutions via mergers and acquisitions.

As a result, the number of industrial firms is expected to drop at a 1.2 percent yearly rate over the next ten years, reaching 1,660 in 2024. Furthermore, although agricultural banks have boosted their technology expenditures to improve their efficiency, especially those connected to financial transactions, technical advancements have generally come from the sector as a whole, rather than from individual industry operators.

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