10 Key Takeaways from Our Recent Ag Risk Webinar

If you work with agricultural borrowers, you know 2025 was a year of mixed signals. That was the big theme of our recent Ag webinar, Farm Financial Health & Credit Risk for Ag Lenders in 2025, where Dr. Gerald Meschangi from the University of Illinois walked through the current state of farm financial health, credit risk, and the broader economic forces shaping ag lending decisions. The good news? Much of the farm sector remains financially resilient. The challenge? That strength isn’t evenly distributed—and that’s where community bankers play a critical role.

Here’s a plain‑English rundown of what stood out most.

1. Fewer Farms, Bigger Operations—and Strong Productivity U.S. agriculture continues to consolidate. There are fewer farms today, but they’re larger and far more productive. Average farm size has grown to roughly 466 acres, while total agricultural output has tripled since the late 1940s—even though total farmland acres have declined. Why it matters for bankers: This is a long‑term efficiency story, not a short‑term concern. Larger operations tend to be more capital‑intensive, which can increase both borrowing needs and balance‑sheet complexity. Relationship banking and understanding scale differences are more important than ever.

2. A Tale of Two Ag Economies: Livestock vs. Crops One of the clearest themes from the webinar was the growing divergence between livestock and grain producers. – Livestock producers are benefiting from tight supplies and strong prices, especially in cattle. Herd liquidation has pushed inventories to historic lows, driving prices higher. – Grain producers, on the other hand, are facing pressure. Since grain prices peaked in 2022, declining prices have pulled down revenues and inventory values. Why it matters for bankers: Ag is not one homogenous portfolio. Credit risk looks very different depending on commodity exposure. Livestock borrowers may be seeing stronger cash flow, while grain producers may need closer monitoring—especially as margins tighten.

3. Farm Income Is Up—but That Doesn’t Tell the Whole Story USDA projects net farm income to rise to about $180 billion in 2025. Production expenses are expected to remain relatively flat, meaning more income flows to the bottom line. But averages can be misleading. Why it matters for bankers: Strong sector‑level numbers don’t eliminate borrower‑level risk. The webinar repeatedly emphasized looking at distributions—not just medians—when assessing liquidity, solvency, and repayment capacity

4. Liquidity Is Still Strong—But Trending Lower for Grain Farms Liquidity, measured by working capital relative to gross farm returns, remains solid overall. Most grain farms still fall into the “strong” category under the Farm Financial Scorecard. That said: – Working capital has declined as grain prices fell. – Current assets (especially inventories) are worth less. – Current liabilities have risen. Why it matters for bankers: This isn’t a crisis, but it is a trend. Borrowers may still look healthy on paper, but reduced liquidity cushions mean less room for error if prices fall further or costs rise unexpectedly.

 5. Solvency Remains a Bright Spot—for Now At the sector level, the farm debt‑to‑asset ratio remains low, hovering around 13–14%. Even at the farm level, most grain producers are still well within “strong” solvency thresholds. However, the most leveraged 25% of grain farms are edging into cautionary territory. Why it matters for bankers: Solvency is not the immediate concern—cash flow is. Highly leveraged borrowers are feeling the impact of higher interest rates more acutely, especially when margins are compressed.

6. Interest Expense Is Rising Where It Hurts Most Interest costs per tillable acre have increased sharply for the most indebted farms. While lower‑leveraged borrowers are absorbing rate increases reasonably well, highly leveraged operations are seeing meaningful pressure on cash flow. Why it matters for bankers: This reinforces the importance of stress testing. Even borrowers with acceptable collateral coverage may struggle if debt‑servicing costs outpace earnings.

7. Equipment Lending Is Softening—and There’s a Reason Farm machinery and equipment demand has cooled noticeably: – Borrower margins have compressed since 2022. – Capital replacement margins turned negative for many small and mid‑sized grain farms. – Manufacturers are cutting production and announcing layoffs. Why it matters for bankers: Slower equipment loan growth isn’t just a demand issue—it’s a borrower balance‑sheet issue. Many producers are choosing to defer purchases rather than stretch cash flow further.

8. Bird Flu Still Matters—Especially for Poultry and Dairy Bird flu continues to affect poultry markets, though inventories are beginning to recover. Egg prices have moderated after extreme volatility. The disease has also appeared in dairy cattle, adding uncertainty to milk production. Meanwhile, dairy continues to consolidate: – Fewer farms. – Larger herds. – Higher output per cow. – Lower milk prices. Why it matters for bankers: Volatility is now part of the operating environment for animal agriculture. Risk management tools and insurance programs are becoming more important in credit conversations.

9. Farmland Values Are High—but Showing Mixed Signals Farmland remains the backbone of the ag balance sheet, accounting for more than 80% of farm asset values. Nationally, values rose again in 2025, supported by: – Investor demand – Inflation‑hedging characteristics – Stable long‑term returns However, recent transaction data shows softening in some high‑quality markets, including parts of Illinois. Why it matters for bankers: Collateral values are still strong, but appreciation may slow. Conservative loan‑to‑value discipline remains prudent, especially in markets that saw rapid run‑ups.

10. Trade, Tariffs, and Global Competition Add Uncertainty Trade policy remains a wild card. China has significantly reduced its reliance on U.S. soybeans, while Brazil and Argentina have gained market share. Even when purchase agreements are announced, they remain tentative. Why it matters for bankers: Export‑dependent producers face ongoing price and demand risk. Trade disruptions can show up quickly in borrower cash flow—even when balance sheets look sound.

The Bottom Line for Community Bankers

The ag economy in 2025 is best described as stable, but uneven.

For community bankers, this is where local knowledge and proactive credit management make the difference. Understanding a borrower’s cost structure, liquidity trends, and repayment capacity—not just collateral values—are key in navigating the year ahead. As Dr. Meschangi summed it up, this is a year of recovery for parts of ag, but also a reminder that risk is rarely evenly distributed.

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