During the third quarter of 2023, agricultural credit conditions in the Kansas City Fed’s Tenth District saw a decrease, with farm income and loan repayment rates lower than the previous year for the second consecutive quarter. The decline was more prominent in areas affected by drought, but less severe in regions with a high concentration of cattle production. This softening comes after two years of significant improvement in loan performance.
Even with the decrease in farm finances and a substantial rise in interest rates, the value of agricultural real estate in the region remained steady. The agricultural economy has softened in the last few quarters, coinciding with a moderation in commodity prices. This, combined with increased production costs, has likely led to a reduction in farm income in 2023.
Despite the decrease in incomes and higher interest costs, agricultural loan performance has remained strong, thanks to the support from robust finances over the past two years. This indicates that despite the challenges, the agricultural sector in the Tenth District is still holding up well.