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KC FED REPORTS REAL ESTATE LENDING PUSHES FARM DEBT HIGHER
Sep. 2, 2022
Source: Kansas City Federal Reserve Bank
Strong growth in farm real estate debt pushed agricultural loan balances higher at commercial banks in the second quarter. Outstanding farm debt increased about 5% from the previous year, the fastest pace in nearly six years. While agricultural real estate loans continued to build, production lending rose modestly following subdued demand in recent years. Loan performance also improved further. Recent loan growth supported a slight improvement in interest margins and income at agricultural banks from last quarter, but bank liquidity remained abundant.
The agricultural economy remained steady over the past quarter, providing ongoing support to farm finances. The price of most major commodities remained elevated and the outlook for profit opportunities across the sector in 2022 was positive despite heightened volatility in some markets. With substantially higher production costs and weather risks, incomes could be pressured if commodity prices drop more notably, and credit needs could also be pushed higher. Despite growing risks, farm balance sheets remained strong alongside high liquidity, and a sharp increase in farm real estate values also continued to support agricultural credit conditions.
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