USDA census data update: 4 agricultural lender takeaways

The 2022 Census of Agriculture includes relevant historical data from as far back as 1997 for reference purposes. Between 1997 and 2007, the number of farms remained relatively steady. However, since 2007, the number has declined from about 2.2 million farms to 1.9 million – a loss of about 14%, with about 47% of that loss occurring since the last census.

Total farming acreage is gradually shrinking

Over the same period, the total acreage of farmland dropped too, from about 922 million to 880 million acres, with about 48% of that loss occurring since the last census.

Why should agricultural lenders care? Overall, these numbers represent a trend toward increased consolidation of farming operations and scarcity of farmland. These changes might result from various trends across the domestic and worldwide agricultural industries, from increased efficiency to globalization of production.

While lenders shouldn’t draw quick conclusions from the trend of shrinking farm numbers and acreage, they should review their portfolios. Lenders should verify that acreage, yields, and number of farms among agricultural lending customers continue to align with their organization’s expectations and risk tolerance.

The average age of farmers continues to increase

The average age of U.S. farmers has been rising for at least 20 years. Based on the new Census of Agriculture data, farmers 55 and older now represent 63% of the population of farm operators, compared to 45% in 2002.

Aging populations in the agricultural industry present distinct challenges and opportunities. Agricultural lenders should talk with operators about how they plan to proceed in the coming years, including succession planning, exit strategies, and continuation of operations.

Even farms that have been held by the same family for generations face increasing complexity related to more sophisticated operations, high interest rates, and greater capital requirements for land equipment and operating costs. Lenders have an opportunity to be advisers to clients and prospects on these topics.

At the same time, farmers younger than 35 represent a growing segment of producers. Between 2017 and 2022, the proportion of these young farmers grew by almost 4%. The gender demographics of U.S. agriculture are changing, too. Female producers increased 48% in the past 20 years.

Gender demographics are changing

Agricultural lenders should take steps to evolve with these trends. For example, lenders can step up marketing efforts aimed at younger producers and women. And lenders would be wise to actively promote and engage with women’s leadership efforts and workforce development within the industry.

Production expenses have soared

Crowe loan review and credit specialists have heard from many lenders that ballooning production expenses continue to create strains for producers. The new Census of Agriculture data supports their stories.

Between 2017 and 2022, production expenses rose by around 6.75% each year. Breakdowns of these increases show that the biggest spikes came from animal feed and hired farm labor. However, those are far from the only factors. Fertilizer, lime, and soil conditioner costs increased by a whopping 54% between 2017 and 2022.

Agricultural lenders should verify that their assumptions about expenses line up with this new data. As farming operations become larger, more complex, and more expensive, operators’ borrowing and financial needs will evolve, and so will risk for lenders.

Land values are rising with expenses — but value gains have depended on geography

While the sharp rise in expenses might sound alarming, good news in the industry might offset it. The rising tide of inflation has lifted many boats, so as expenses have ballooned, land values have gone up, too.

However, gains in land values over the past five years have varied heavily from state to state. It’s critical for agricultural lenders to understand their local and regional environments when evaluating the risks associated with rising expenses versus the opportunities and wealth gains created by increasing land values.