An analysis of credit risk migration patterns of agricultural loans

Abstract

Loan migration analysis is conducted using a large data set of loan risk ratings in the Farm Credit System. We find path dependence and limited support for a trend reversal pattern. There is evidence that the magnitude of migrations reported in previous credit score proxy studies overstates trend reversal in agricultural loans rated by lenders. Our results indicate that retention rates of agricultural loan risk ratings are quite high. Small loans are less likely to migrate than medium and large‐sized loans, and unseasoned loans are more likely to migrate than seasoned farm loans