KBRA Financial Intelligence

Farm Debt on the Rise as Federal Aid Counters Rising Expenses

Net farm income in the U.S. agriculture industry is projected by the United States Department of Agriculture (USDA) to fall to roughly $153 billion in 2026, down slightly from $155 billion in 2025. However, that drop is much steeper when excluding the federal government’s direct farm program payments from the equation. Those payments are expected to total more than $44 billion in 2026, an increase from $31 billion in the year prior, and representing 7.2% of all gross cash farm income. Overall net farm income excluding federal payments is forecast to decline by $15 billion to just $109 billion – the smallest sum collected in the past six years.

Federal farm aid had dropped significantly from a pandemic-related surge in 2020, narrowing to just $10 billion by 2024, but has more recently widened again to compensate American farmers with disaster aid and price loss coverage related to the impact of U.S. trade tensions with China.

This time last year, KBRA Financial Intelligence posited that demand for agricultural lending among commercial banks could be adversely impacted by surging federal payments to farmers, policy changes establishing new deferment and low-interest opportunities for distressed farm borrowers, and options for extended loan terms, interest-only payments, and reduced collateral requirements. While collective agricultural lending among U.S. banks did weaken throughout the first half of 2025, it rebounded in the second half of the year.

Although growth in total ag lending still trailed the expansion of total bank lending throughout most of the year, its resilience may have been driven in part by a fourth quarter government shutdown lasting 43 days – the longest such funding lapse in U.S. history. Many USDA Farm Service Agency county offices, which assist farmers with lending, commodity payments, disaster assistance payments and cost sharing, crop insurance liaison, and other farm-program interactions, were closed or operating with minimal staff throughout most of the shutdown period. That likely delayed timely distribution of disaster assistance within the year, as well as the implementation of a USDA-funded $12 billion “bridge payment” package to help farmers cope with trade market disruptions – largely emanating from a Chinese boycott of U.S. soybean purchases.

A greater reliance on debt at increasing interest rates over the past several years has likely played a role in gradually reducing farmers’ available liquidity, as measured by the USDA’s current ratio – simply calculated as current assets divided by current liabilities. The current ratio of U.S. farms is set to fall to 1.99 in 2026, its lowest level since 2020. Simultaneously, farmers’ collective debt service ratio is expected to tie its highest reading since 1987 this year. Total farm interest expenses (excluding operator dwellings) are set to reach a record high in 2026, having almost doubled compared to a decade ago, but the pace of increase is forecast to slow significantly between 2025–2026, rising by only 0.6% year-over-year (YoY). If sustained, an ongoing easing of short and long-term rates may enable cheaper loan origination and favorable refinancing activity among America’s farmers.

In spite of rising expenses tied to operations and financing, agriculture loans have generally maintained relatively low delinquency rates. Through 4Q 2025, delinquency rates for both agricultural production and CRE farmland loans each remained well below the 1.56% delinquency rate across all U.S. bank loans.