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Source: Kansas City Federal Reserve news release

Farm lending activity at commercial banks accelerated in the first quarter of 2022 due to a significant increase in the size of operating loans. With some input costs surging in recent months, the volume of operating loans increased sharply from a year ago and non-real estate lending increased on a rolling four-quarter basis for the first time since mid-2019. The average size of operating notes increased notably alongside a record high share of credits that were greater than $1 million.

While the outlook for the U.S. agricultural economy in 2022 remained strong alongside elevated commodity prices, rising input costs have raised concerns about future profitability. The escalation of the Russia-Ukraine conflict and associated market disruptions pushed crop prices even higher.

However, the turmoil also led to rapid increases in the prices of major inputs such as fuel and some agricultural fertilizers that are sourced from those countries. While higher crop prices are likely to support farm revenues, concerns about the cost and availability of agricultural inputs intensified and higher feed prices could also pressure profit margins for livestock producers. Higher prices for key farm inputs and broad inflation could also put upward pressure on credit needs moving forward.

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