Improved Agricultural Sector Prompts Loosening of Lending Standards

The agricultural credit conditions in the Kansas City Fed’s Tenth District showed signs of softening during the third quarter of 2023. This was evident from lower farm incomes and loan repayment rates compared to the previous year, marking the second consecutive quarter of decline. While areas heavily affected by drought experienced a more significant impact, areas more focused on cattle production felt a more tempered effect.

Despite the softening farm finances and a substantial increase in interest rates, agricultural real estate values remained stable in the region. The ag economy has been affected by a softening trend in recent quarters, which coincided with a moderation in commodity prices. Elevated production costs and a decrease in the price of key products over the past year are likely to have contributed to a reduction in farm income in 2023. However, despite these challenges, the performance of agricultural loans has remained strong due to the solid financial position cultivated over the past two years.

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