‘We are going to see some loss’: Minnesota Ag lenders brace for a volatile 2026
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As Minnesota farmers begin to close their books on a tough 2025 and look ahead to more economic uncertainty in 2026, many may be reaching for the antacid.
This past year has been marked by high input costs, trade turmoil and cratering crop prices that have kept farmers’ profit margins low. A recent credit survey from the Federal Reserve Bank of Minneapolis showed that lenders expect farmers to apply for even more loans as next year rolls around.
And most of those loans don’t come from big nationwide banks. The vast majority actually come from smaller, local community banks, whose staff often know their clientele personally.
Terri Barrett has spent her entire 17-year banking career at Bravera Bank’s branch in Kerkhoven. The town’s population is barely over 800 people, and Barrett knows many of her clients well. She recalled one specific client who mentored her on the ins and outs of the agriculture industry at the start of her career.
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“His family works within the community as well,” Barrett said. “So they know my children well and have become, what feels like more of a family type [of] friendship relationship, not just a business relationship.”
When it’s time to do business with the people she calls friends and neighbors, though, Barrett said she still puts on her banking hat. It’s a practice that isn’t always easy, especially when having tough conversations about her client’s finances.
And she’s starting to worry again for the farmers she works with.
“I wake up in the middle of the night several times a week thinking about some of these situations, because these are people that I’ve worked with for many years and have developed relationships with,” Barrett said, acknowledging that the credit market for her farmers and others across the upper Midwest in 2026 will probably be tight.
The economic environment 2025 leaves behind
The Federal Reserve Bank of Minneapolis’s most recent ag credit survey shows that many lenders are seeing farmers’ incomes shrink.
“Farmers have had a couple of break-even years, meaning they didn’t really make much money, and are just kind of skating by,” Tait Berg, a senior agricultural coordinator for the Minneapolis Fed, said.
While this year saw high yields for crops such as corn and soybeans, crop prices have been relatively low due the Trump administration’s trade war with China and other countries that used to buy large quantities of U.S. crops. On top of that, sticky input costs, such as fertilizer and machinery, continue to rise, leaving farmers with little, if any, money left over to pocket.
With revenue down, many farmers aren’t able to repay their loans as quickly as they used to, and will likely need to borrow more to plant crops next year, according to the Minneapolis Fed’s survey.
“In some cases, farmers have had to give a little equity back to the banks by maybe taking on some additional debt that we would call carryover debt,” Berg said. “Depending on the individual producer, that would maybe really weaken their financial position.”
But for banks to lend more money, they need to ensure farmers can repay it. So, they’ll look at how big of a yield the farmer expects and the prices they’ll anticipate getting for those crops.
Typically, lenders look at historical averages of crop yields and combine that with projected future crop prices to estimate anticipated revenue. But, in a time where crop prices jump up or crash down depending on the latest headline, it’s getting more difficult for banks to make those determinations.
“We all want stability, and we want to have prices not bouncing around,” said Dave Lorence, CEO of Lowry State Bank in Lowry. “Because there are days when the price of a crop can be up, and it can be down.”
That kind of volatility is most notable in soybean prices this year. The price plunged after China refused to buy U.S. beans in retaliation for President Donald Trump's imposition of high tariffs on Chinese goods.
Then, prices shot up last month, when China verbally agreed to buy 12 million metric tons of beans, about half of what the country bought last year. But the price has since plummeted as China hasn’t yet fully followed through on its promise.
“So, if you’re trying to make a selling decision because you need to create cash for a particular obligation at a particular point in time,” Lorence said. “It gets to be really a tough decision-making process for the farm and [that] creates volatility.”
It’s a situation that most lenders and farmers have been through before. The U.S. started a trade war with China in 2018 during the first Trump Administration, which caused similar volatility in crop markets, which led to farm losses.
Mitch Worms, vice president at Glenwood State Bank, said during that time period, the best thing his bank did was initiate transparent, detailed conversations with its farmers about their finances and how to best prepare for survival.
“We don’t want to jump in and out with our borrowers; we work with them,” Worms said. “[We] worked on the projections and cash flows and tried to be ahead of the game, as far as seeing what risks may be coming from a volatile market like that.”
In Trump’s first term, his administration also handed out direct government payments to help farmers weather that trade war and the subsequent decline in farm revenue — a tactic the Trump Administration is employing again.
Bridging the gap of lost revenue
The U.S. Department of Agriculture projects that direct government aid will be up a whopping 345 percent for this year compared to 2024. The president is also promising to give producers another $12 billion in aid in February.
But details on how those payments will be doled out, to whom, and how much each producer will get are still murky. Which means banks can’t yet entirely rely on that income when evaluating farmers’ loan applications.
“We don’t have anything in writing that says this producer is going to receive this amount of dollars,” Barrett with Bravera Bank said. “If we did have that, we would certainly consider it in our analysis. But because it’s up in the air and unknown, we really like to look at kind of where things are without that.”
Tait Berg with the Minneapolis Fed called these payments “ad hoc,” which is Latin for “when needed.”
“Basically, it makes revenue streams uncertain for farmers,” Berg said. “When it’s uncertain for farmers, it’s uncertain for lenders too, so it makes it really hard to underwrite that loan and assess risk properly.”
That’s not to say these government payments aren’t welcome, though. The farming community has largely supported the aid, as it could help bridge the gap between 2025’s revenue losses and next year’s harvest income.
Still, because the aid is a one-time payment, it leaves lenders such as Barrett to be much more diligent and scrutinous in reviewing loan applications this winter.
“We are certainly going to see some loss coming into 2026,” she said. “Those farmers are still out there working every day, and they likely will not get paid very much.”
Barrett says she’s never had to tell a producer they’ll have to sell their farm to pay off their debt. And she hopes that will still be the case next year.
“I never like to see our hard-working customers lose money [or] work for free,” she said. “I’ve gone through this cycle before, so it's not a first for me, and I really just try to approach it from ‘How can we make this work? Where are our biggest risks, and what can we do to mitigate those?’”
It’s a tricky balancing act aimed at keeping both the community bank lender and the farmers afloat in uncertain times. Those local banks make roughly 80 percent of all banking agricultural loans, according to data from the Independent Community Bankers of America.
With so many farmers relying on community banks, Barret said protecting community banks is about preserving the ag-centered small communities in which they all live.
“We're making these decisions not just to protect the bank,” Barrett said. “[But] because we want to make sure that we're a safe and secure bank, so that we're protecting all of our customers.”
