KC Fed Reports on Farm Lending

Source: Federal Reserve Bank of Kansas City

Larger sized loans continued to boost lending activity in the second quarter while farm loan interest rates edged higher. The volume of non-real estate agricultural loans grew at a steady pace alongside an increase in the number and average size of loans.

Interest rates remained historically low but continued to increase from recent quarters on nearly all types of farm loans, as benchmark rates rose further. The average maturity of some types of loans, particularly real estate loans, also increased during the quarter and were above recent historic averages.

Farm lending activity showed signs of rebounding from the pullback in recent years and could grow further in the coming months as the higher costs of many major inputs become more fully realized.

Despite recent declines, agricultural commodity prices remained elevated through the first half of 2022 and continued to support revenue and income prospects across the farm sector. However, persistent pressure from higher production expenses could squeeze profit margins going forward and drive higher demand for credit.