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Source: Federal Reserve Bank of Kansas City news release

Farm debt at commercial banks showed signs of stabilizing at the end of 2021. Driven by a higher balance of both real estate and non-real estate loans, agricultural debt increased for the first time since 2019.

While the pullback in lending abated, agricultural loan balances remained below the recent historic average. Farm real estate loans also increased slightly at agricultural banks, but production loans continued to decline and led to further reduction in the concentration of debt among those lenders.

The low interest rate environment continued to pressure margins for lenders and sharp asset growth pushed capital ratios lower, but recent strength in earnings performance held overall returns for agricultural banks above the recent historic average.

A relatively strong outlook for the farm economy in 2022 appears likely to continue supporting improvements in agricultural credit conditions. Alongside broad strength in farm finances, delinquency rates on farm loans improved further through the end of the year and liquidity at agricultural banks reached a 20-year high.

A rise in production expenses and a reduction in government aid could contribute to higher demand for farm loans in the year ahead and with abundant liquidity, agricultural banks seem to be well positioned to meet borrowers' credit needs.

To view the complete report, click here.

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