Bankers See 59% of Farm Borrowers Profitable in 2026 as Margins Thin

Agricultural lenders expect 59% of farm borrowers to remain profitable in 2026, even as nearly three-quarters of more than 600 surveyed loan officers and bank executives reported a decline in overall farm profitability, according to a summer survey by Farmer Mac and the American Bankers Association.

The findings rest on an "upward trend in commodity prices this summer, projected record government payments and strong livestock profitability," the survey results state. Jackson Takach, Farmer Mac's chief economist and head of strategy, called the results "conflicting findings": more farmers are in the black, but they are earning less than they did a year ago. Respondents predict only 56% of borrowers will remain profitable in 2027.

"A higher percentage is in the black, but that level of black is lower than it was a year ago, and the expectation is that it's going to get more eroded next year," Takach told Agri-Pulse on the sidelines of the ABA's Ag Bankers conference in Minneapolis.

Nate Franzén, president of the Ag Banking Division at First Dakota National Bank in Yankton, South Dakota, said he was "starting to get a little bit nervous about how producers might fare" during the 2025 crop year but was "pleasantly surprised" by good yields and strong cattle prices. Eighty-six percent of his customers were profitable, which he called "a pretty high number on average."

He still expects tighter margins in 2026 given high input costs and variable yields. Producers with strong yields who captured the fall grain rally "will probably be fine," he said, while those with challenging yields will depend on how the numbers work out with crop insurance.

How dependent are farms on government money?

Heavily. Around half of surveyed lenders said 25% or more of their borrowers' net income came from direct government payments. Seventy-four percent of respondents said reliance on those payments increased in 2026, and 67% expect it to increase next year.

USDA's Economic Research Service projects direct federal payments to producers at $47.4 billion in 2026, the second-highest annual total on record when adjusted for inflation, behind only 2020. That figure excludes an additional $8 billion in Harvest Fuel Relief payments the Trump administration announced in October.

Farmer Mac economists cautioned that payment income is not guaranteed in future years, which complicates underwriting (the bank process of assessing loan risk). Nearly 80% of respondents said they exclude expected future government payments from loan decisions unless the payments are already authorized. Franzén's advice to producers: "Because they're ad hoc, those dollars can disappear, so don't become dependent on them."

A separate October survey of rural bank CEOs by Creighton University found nearly half of respondents expect federal farm assistance to be "very" or "extremely" important in preventing agricultural loan defaults next year.

What is happening on rural Main Street?

Creighton's Rural Mainstreet Index, which measures banker sentiment across a 10-state region on a 0-to-100 scale with 50 as growth-neutral, fell to 42.5 in October, its fifth below-neutral reading in six months. Creighton economist Ernie Goss said grain prices are up from a year ago, "but costs are up even more and pushing some of the farmers and ranchers into negative cash flow territory." He cited the "three f's": fertilizer, fuel and feed.

Outlooks for hiring and bank lending improved slightly, and farmland price attitudes stayed neutral, but equipment sales, housing and retail activity remained weak. Creighton's equipment sales index has sat below growth-neutral for 38 consecutive months, and 28% of respondents named ag equipment dealers as the non-farm sector under the greatest financial stress.

What do Fed credit data show?

A Federal Reserve Bank of Minneapolis survey of 84 bankers across Montana, the Dakotas, Minnesota, northwestern Wisconsin and Michigan's Upper Peninsula found most reporting only "small shifts" in borrowing: 20% saw increased loan demand, 16% a decline. Looking forward, 35% expect demand to rise, while 41% warned of a potential decline in agricultural loan quality.

Federal Reserve System data show $56.47 billion in non-real estate bank loans to U.S. farmers in the third quarter of 2026, down $2.87 billion from the prior quarter and $18.86 billion from a year earlier. Kansas City Fed Associate Economist Ty Kreitman attributed the decline to smaller loan sizes, particularly at small and mid-sized banks: average new operating loans at banks with portfolios under $100 million have fallen to roughly $30,000, versus more than $100,000 at points in the past two years.

Kansas City Fed Senior Vice President Nate Kauffman noted repayment rates weakened year over year, scoring 82 in the bank's third-quarter credit conditions survey, though slightly above the second quarter. Corn prices rose 8% and soybeans 7.4% between the quarters, improving row-crop profitability despite large diesel cost increases.

In the Farmer Mac-ABA survey, bankers in the Corn Belt, Plains, South and West believed delinquencies had increased, and lenders expect credit quality to deteriorate over the next 12 months. Takach noted delinquencies are a "backwards-looking indicator" and have not been a major problem in most portfolios, except possibly in the Mississippi Delta, where soybeans, rice and cotton were "hit very hard" by trade disruptions and lower prices last year. Bankers will watch whether projected payment flows and the fall price rally hold through 2027 underwriting season.