Modernizing Ag Lending     

*This article appears in the third quarter 2025 issue of Bank Director magazine.

The agriculture sector is evolving rapidly, both in production and access to capital. Farmers today face everything from generational shifts to global market pressures. At the same time, agricultural lenders are being asked to support producers through an increasing complex world, while modernizing their own operations. Financial institutions that adapt to market shifts, embrace digital transformation and harness data will be best positioned to help their customers and protect their portfolios.

Production Pressures
Generational transitions are redefining the producer profile. The traditional image of a family-run farm passed down through generations is shifting. As many baby boomer farmers retire, their Gen X and millennial children are often less inclined to take the reins. As a result, the number of U.S. farm operators has dropped significantly, contributing to a growing reliance on larger agribusinesses. Lenders now must complete larger, more complex agribusiness deals, adding new layers of risk. Meanwhile, with fewer family members involved, producers are increasingly dependent on hired labor, adding another strain.

Technology brings efficiency and complexity. Today’s farmers are turning to automation and precision ag tools, such as automated seeders, to stay competitive. Technology allows producers to scale and improve efficiency while driving up capital expenditure. Not only must producers finance new, often expensive equipment, but they also face the cost burden of legacy equipment. Lenders must evaluate both the return on investment and the broader implications of technology adoption.

Global market forces add volatility. Trade disputes are top of mind, with agriculture often the first target when reciprocal tariffs are enacted. These trade barriers can quickly erode demand and pricing power in the near term. At the same time, U.S. producers face mounting international competition, particularly from Brazil. Rising input costs make it harder for producers to forecast earnings and for lenders to underwrite risk. Consequently, near-term turmoil and downward pressure on net farm income is expected.

The New Reality for Ag Lenders
Balance tradition with transformation. Ag lending has long been rooted in personal relationships and local expertise. But bank employee attrition is a growing concern, as smaller, regional banks with significant ag loan portfolios increasingly lose talent to larger institutions offering higher pay and hybrid work environments. Lenders will need to think critically about how they can compete.

Manage cyclical cash flows and complex portfolios. Ag lending portfolios are uniquely tied to seasonal cycles, which can result in irregular and unpredictable repayment schedules. Meanwhile, risk modeling is becoming more complicated as economic pressures grow and producers increasingly need financial partners who can help them plan, not just fund.

Producers are experts in production — not always in business. Most farmers excel at growing crops and raising livestock, but fewer have deep experience in financial management or operational efficiency. As a result, producers are often reliant on their lender to help them understand their financials.

A Strategic Blueprint
Embrace digitization and automation. Lenders should look to reduce operational burden through automation and digitization. Solutions that integrate large datasets, AI-powered tools and intelligent workflows can streamline the lending process.

Enhance portfolio analysis with better data. Robust analytics are essential for assessing credit risk, forecasting trends and managing loan loss reserves. By developing comprehensive digital portfolios, lenders can empower their teams with actionable insights. Lenders can also leverage data and tools to structure lending facilities that align with the seasonal complexities of agricultural borrowers’ cash flows.

Build a resilient, scalable lender model. The most future-ready ag lenders will strike a balance between personal expertise and data-driven decision support. Investing in secure, scalable solutions will position these institutions to grow while managing risk. To make room for more high-value work, lenders should also look for ways to reduce manual and redundant tasks.

The agricultural industry is changing — and fast. Generational shifts, technological advancements and global market pressures are pushing lenders to evolve alongside the producers they serve or risk falling behind. In today’s landscape, the future belongs to those who digitize, automate and lead with insight.