Despite a significant improvement in agricultural credit conditions in the Kansas City Fed’s Tenth District over the past two years, softening farm finances and higher interest rates have led to a slight decline in loan performance. The ag economy has also weakened due to a moderation in commodity prices and elevated production costs. However, despite these challenges, agricultural real estate values have remained firm.
Drought-affected areas have seen more pronounced moderation in loan repayment rates, while areas with high cattle production have experienced more tempered declines. Despite the softening of farm finances and higher interest rates, ag loan performance remains solid thanks to ongoing support from strong finances over the past two years. However, with declining farm income due to drops in key product prices and rising production costs, farmers are facing tougher times ahead.