The Profitability of Agricultural Customers for Commercial Banks in the Southeast

Changes which have occurred in the U. S. agricultural and economic environments over the past few years have important implications for the financing of agriculture. Increased dependence on purchased inputs, coupled with inflation in all areas, has placed added emphasis on the need of farmers to secure capital to fund their operations. A parallel concern is the ability and willingness of financial institutions to supply adequate financing.

Commercial banks have a dominant position in the total agricultural market and as a result farmers are dependent on them (Melichar and Waldheger). Because of this dependence and for the health of the agricultural economy, commercial banks must continue to supply adequate amounts of funding. If banks are to do this, they must continue to perceive agricultural lending and relationships with agriculturally oriented customers as being consistent with their own profitability goals. Our research results indicate the relative importance and profitability associated with agricultural customers in comparison with other customers.