Real Estate Lending Pushes Farm Debit Higher

The Kansas City Fed said strong growth in farm real estate debt pushed agricultural loan balances higher at commercial banks in the 2nd quarter.  Outstanding farm debt increased by 5% from last year, the fastest pace in almost six years.  While agricultural real estate loans continued to build, production lending rose more modestly following subdued demand in recent years. Loan performance continued to improve.  Recent loan growth supported a slight improvement in the 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.  With substantially higher production costs and weather risks, incomes could be pressured if commodity prices drop more notably.  Despite some 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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