In the third quarter of 2023, agricultural credit conditions in the Kansas City Fed’s Tenth District showed signs of improvement. This was evidenced by higher loan repayment rates compared to the previous year, marking a reversal of the previous decline. The impact of this moderation was more evident in areas focused on cattle production, while areas heavily affected by drought experienced a more tempered effect. This shift comes after two years of substantial improvement that had been bolstering loan performance.
Despite the softening farm finances and a significant increase in interest rates, agricultural real estate values in the region remained stable. The ag economy has been affected by a softening trend in recent quarters, a trend that has coincided with a moderation in commodity prices. The combination of elevated production costs and a decrease in the price of key products over the past year is likely to have contributed to a reduction in farm income in 2023. Nevertheless, despite the softening incomes and higher interest costs, the performance of agricultural loans has remained strong, thanks in part to the solid financial position cultivated over the past two years.