Farm Credit Conditions Strong, Despite Rising Rates

Agricultural credit conditions in the Tenth District remained strong, and farm real estate values continued to increase, but growth has softened, said a report from the Federal Reserve Bank of Kansas City, in a release.

The Tenth District covers Colorado, Kansas, Nebraska, Oklahoma and Wyoming; 43 counties in western Missouri, and 14 counties in northern New Mexico.

Strength in farm real estate markets eased, but farmland values continued to increase despite pressure from higher interest rates, the Bank said.  Farm income moderated alongside a slight pullback in commodity prices during the first quarter slowing the pace of increase in loan repayment rates.

While improvement in farm finances and credit conditions steadied and some lenders expected a degree of deterioration in the months ahead, multiple years of strong incomes continued to keep credit stress low, the release said.




The outlook for the US farm economy in 2023 remained favorable as prices of key commodities were at multi-year highs, the bank said.  Elevated production expenses, higher interest rates and drought continued to present headwinds for many, but current commodity prices kept profit opportunities within reach.

Higher production expenses pushed many producers to increase lines of credit, but others also pursued cost-cutting measures or utilized cash to reduce financing needs, dampening loan demand at many banks, the report said.  Financial performance and liquidity at agricultural banks remained solid, and farm lenders appeared well positioned to meet higher credit demand through the early months of 2023.




Farm loan interest rates rose alongside further increases in benchmark rates, the Federal Reserve said.  The average rate charged on agricultural loans was about 30 basis points higher than the previous quarter and nearly 300 basis points higher than a year ago.

Farm loan interest rates climbed alongside increases in the federal funds rate and other key benchmarks pushing credit expenses up considerably, the release said.

Growth in farm real estate markets softened as interest rates rose, but land values continued to increase in the first quarter, the Bank said.  The pace slowed from the rapidly accelerating growth in early 2022, but the value of agricultural land increased about 10% from a year ago.

Farmland cash rents increased alongside growth in land values, but steadied quickly in the first quarter, the report said.

The outlook for land values and cash rents shifted considerably over the past year, the Bank said.  Only about 20% of survey respondents expected an increase in non-irrigated farmland values in the coming months, compared with 50% a year ago. A similar path was expected for cash rental rates, with about 20% of banks expecting an increase in the next quarter.




The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $172.08 per cwt to $172.60, compared with last week’s range of $169.94 to $177.58 per cwt.  FOB dressed steers, and heifers went for $271.48 per cwt to $272.15, compared with $269.65 to $276.85.

The USDA choice cutout Monday was up $2.80 per cwt at $303.90 while select was down $0.51 at $283.43.  The choice/select spread widened to $20.47 from $17.16 with 75 loads of fabricated product and 19 loads of trimmings and grinds sold into the spot market.

The USDA said basis bids for corn from feeders in the Southern Plains were unchanged to down $0.03 at $1.73 to $1.85 a bushel over the Jul corn contract, which settled at $5.71 a bushel, up $0.16 1/2.

The CME Feeder Cattle Index for the seven days ended Friday was $204.70 per cwt, up $2.34.  This compares with Monday’s May contract settlement of $206.57 per cwt, up $0.30 and Aug’s $234.90, down $0.20.