MINNEAPOLIS (DTN) -- Agricultural bankers are seeing continued pressure on farm profitability and growing credit risks, with borrowers' working capital ranking as their top concern for the fourth consecutive year.

Lenders reported continued pressure on farm profitability in 2026, with 75% of respondents saying profitability had declined among their borrowers, according to the annual survey by the American Bankers Association and Farmer Mac.

Bankers estimated 59% of borrowers would remain profitable this year, compared with 52% in 2025 and 81% in 2022.

Lenders also expect the share of profitable farmers to slip to 56% in 2027, and only 5% of bankers who responded to the survey expect overall farm profitability to increase next year.

Ag bankers also highlighted the split in profitability between livestock producers and crop producers. Lenders with livestock-heavy portfolios estimated 66% of borrowers would be profitable in 2026, compared with 57% among bankers with crop-heavy portfolios.

Cotton surpassed grains as bankers' leading commodity concern. High concern ratings were reported by 55% of bankers with cotton exposure and 53% for grains. Bankers' concerns about grain farmers nevertheless dialed back from 69% last year.

The bankers' survey reflects both declining earnings among farmers and continued profitability: Farmers can remain profitable even as their margins tighten.

At the same time, government payments remain a key component in creating some level of profitability in the grains sector. Projected record government payments, at roughly $47 billion, have helped offset compressed margins, according to survey responses. Lenders estimated that 40% of borrowers would not be profitable this year -- an estimate that varied widely by region and sector concentration.

Approximately half of lenders said government payments accounted for at least 25% of their borrowers' net income, compared with 30% of lenders last year. Nearly three-quarters of bankers reported increased reliance on government payments in 2026, and 67% expect that reliance to increase in 2027.

"Agricultural lenders are navigating a delicate balance: credit demand is rising just as market volatility, funding costs, and competitive pressures are intensifying," remarked Jackson Takach, chief economist and head of Farmer & Ranch at Farmer Mac. "The institutions best positioned for the year ahead will be those that combine disciplined risk management with technology, secondary-market tools, and the strong borrower relationships that have long defined agricultural lending."

The survey was released Wednesday at ABA's Agricultural Bankers Conference in Minneapolis.

Overall, agricultural loan performance remained generally strong in 2026 despite continued financial pressure across much of the farm economy. However, lenders reported that tighter margins and elevated input costs have led to higher credit demand, even among producers benefiting from stronger commodity markets.

"Agricultural borrowers are seeing better farm profitability than they expected a year ago, with support from government payments, but that doesn't mean financial stress has disappeared," said Ryan Lee, ABA's research and economic policy manager. "Working capital remains under pressure, loan demand is rising and lenders continue to watch credit quality closely. The survey reflects both the resilience of farm borrowers and the challenges many producers still face heading into 2027."

Inflationary pressure also rose more sharply than any other concern as higher energy prices increased input costs. Producers were more insulated from last spring's price hikes because many of them had pre-booked inputs such as fertilizer ahead of the price spike. Lenders raised concerns that farmers will face higher prices going into the 2027 planting season.

Credit quality again ranked as lenders' leading concern. Agricultural loan deterioration ranked first among concerns facing lending institutions, followed by lender competition and interest rate volatility.

Delinquencies continued to rise but remain historically healthy. Bankers reported rising agricultural loan delinquencies and charge-offs and expect credit quality to weaken further over the next 12 months. Even so, credit standards remain relatively stable, with fewer lenders planning to tighten underwriting standards or loan terms.

Higher operating costs are increasing demand for credit. Demand rose in 2026 for both agricultural production loans and loans secured by farmland. Lenders expect demand in both categories to increase further over the next 12 months. "Higher operating costs have raised ag borrowers' credit needs."

Farmland values remain resilient. Lenders reported modest increases in farmland values during 2026 despite economic headwinds. Most expect little to no change in farmland values or cash rents over the coming year.

Approval rates remain strong. Lenders reported an average approval rate of 82% for new agricultural loan applications in 2026. They expect an 88% approval rate for renewal requests over the next year.

The bankers' survey was distributed between July 13 and Aug. 17, 2026, and received responses from more than 600 agricultural lenders representing institutions of varying sizes and geographic regions across the country.

Since 2016, the American Bankers Association and Farmer Mac have collaborated annually on a joint survey of agricultural lenders to gauge overall industry sentiment on the farm economy, expectations on land values, prospects for the coming year and issues facing the broader economy.

Chris Clayton can be reached at Chris.Clayton@dtn.com

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