During the third quarter of 2023, agricultural credit conditions in the Kansas City Fed’s Tenth District softened slightly. This was due to a decline in farm income and loan repayment rates, which were lower than a year ago for the second straight quarter. The moderation was more pronounced in areas hit hardest by drought but more tempered in areas most concentrated in cattle production.
Despite this softening of farm finances and substantially higher interest rates, agricultural real estate values remained firm. This suggests that farmers are maintaining their confidence in the long-term viability of agriculture despite recent challenges.
The ag economy has been on a rollercoaster ride over the past few years, with significant improvement followed by a softening alongside a moderation in commodity prices. Elevated production costs have also contributed to this decline, as have drops in prices for many key products during the past year. However, despite these challenges, ag loan performance has remained solid with ongoing support from strong finances during the past two years.