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Agricultural Lending 2014

The Office of the Comptroller of the Currency’s (OCC) Comptroller’s Handbook booklet, “Agricultural Lending,” provides guidance for bank examiners and bankers on the risks presented by agricultural (Ag) lending activities. The booklet, one of several specialized lending booklets in the Comptroller’s Handbook, supplements guidance contained in the “Loan Portfolio Management,” “Large Bank Supervision,” and “Community Bank Supervision” booklets.

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Ag lending is a critical business line for many banks, especially those in rural areas. Bank credit has played an important role in farm activities throughout U.S. history. Most farms in the United States remain family-owned. The financing supplied by banks is essential to many individual farm operators and to the development of new Ag technologies and techniques. As with all forms of lending, Accredit presents the banker with a unique set of risks.

Each region of the country has unique conditions, reflected in the variety of commodities produced and marketed. Typically, there is at least some Ag product diversification within a region; because of the interrelationships between many farm products and activities, and their influence on surrounding communities, however, Ag concentrations represent a key risk for many community banks. Moreover, each Ag enterprise presents unique technologies, restrictions, and challenges for both the borrower and the bank lender.

The traditional role of bank credit in the Ag industry has involved funding seasonal production and longer-term investments in land, buildings, equipment, and breeding stock. Loan repayment depends primarily on the successful production and marketing of Ag products, and secondarily on loan collateral. In some cases, income generated from work performed outside the Ag industry (nonfarm income) or work performed for other farms (off-farm income) may be available. Such income is often devoted to family living expenses, however, and may only supplement the borrower’s repayment ability.