Agricultural credit conditions in the Tenth Federal Reserve District remain strong and farm real estate values continue to increase, but growth has softened slightly. Farmland values continue to increase despite downward pressure from higher interest rates. While improvement in farm finances and credit conditions hold steady and a small number of lenders expect a degree of deterioration in the months ahead, multiple years of strong incomes continue to keep credit stress low.
The outlook for the U.S. farm economy in 2023 remains favorable as prices of key commodities are at multi-year highs. Elevated production expenses, higher interest rates and drought continue to present headwinds for many producers, but current commodity prices keep profit opportunities within reach. Higher production expenses have pushed many producers to increase lines of credit, but others also have pursued cost-cutting measures or utilized cash to reduce financing needs, dampening loan demand at many banks. Financial performance and liquidity at agricultural banks remain solid and farm lenders appear well-positioned to meet higher credit demand.
Farm loan interest rates have risen alongside further increases in benchmark rates. The average rate charged on agricultural loans is about 30 basis points higher than the previous quarter and nearly 300 basis points higher than a year ago. Farm loan interest rates have climbed alongside increases in the federal funds rate and other key benchmarks, pushing credit expenses up considerably.
EDITOR’S TAKE:
The 10th Fed District is a key agricultural barometer for the entire Federal Reserve. Things remain on very solid footing according to this most recent report. Despite some headwinds with input costs last fall and earlier this year, recent declines have helped moderate the impact on margins and profitability. Land values continue to climb despite increasing interest rates (up 300 basis points from a year earlier). Farmers/ranchers truly are your best customer prospects in the current environment. They have the means that others may not have right now to purchase those trucks that are beginning to show up on your lot again. Make sure your inventory is on AgTruckTrader.com where we only target farmers and ranchers. Besides, what do you have to lose since it’s free to all CAD members!
