El Niño and Agricultural Lending in the Southeastern U.S.A

We study how agricultural loan portfolios in commercial banks serving agricultural producers are affected by inter-annual climate variability in the Southeast U.S. - a region strongly affected by the El Nino Southern Oscillation (ENSO). We use panel data for 473 agricultural banks from six southeastern states over the period of 1991-2010, together with several ENSO indexes. We find that non-neutral ENSO years that typically have higher incidence of weather extremes are associated with smaller levels of non-performing loans suggesting that farmers' losses in extreme years are helped by support mechanisms. Consistent with recent theoretical work, and findings about US community banks, our results suggest that the impact of the ENSO is mitigated by complementary financial markets and support mechanisms