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KANSAS CITY FED REPORTS INTEREST RATES RISE AND FARM LENDING SOFTENS
Apr. 20, 2023
Source: Federal Reserve Bank of Kansas City
Growth in farm lending activity at commercial banks was limited in the first quarter of 2023 as interest rates climbed higher. Alongside additional increases in the federal funds rates, interest rates on farm loans rose sharply. The rapid rise has shifted the range of rates offered to borrowers upward considerably. Non-real estate farm loan volumes decreased about 10% from the previous year in the first quarter of 2023, following average growth of 15% in 2022. Lending activity was pushed down by fewer new loans and smaller-sized operating loans.
The outlook for farm finances remained favorable alongside elevated commodity prices, but higher interest rates, increased production costs and drought remained key ongoing concerns. Remarkably strong farm income during recent years has bolstered liquidity for many producers and supported historically strong farm loan performance. The availability of credit at agricultural banks remained ample and while higher expenses could increase borrowing needs for some operations, substantially higher interest costs could also put downward pressure on demand for credit.
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