Farm Lending Steady, but Risks Remain

Agricultural lending at commercial banks was steady in the second quarter, but risks in the farm sector continued to weigh on loan growth and credit conditions. The volume of non-real estate farm loans increased only slightly from a year ago as interest rates continued to trend up at a modest pace and maturities continued to lengthen. The rate of farm loan delinquencies edged higher, but the performance of agricultural banks generally remained strong, even as farmland values in most areas continued to decline.

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Lending in the farm sector generally remained stable, even as farm loan delinquency rates continued to trend up. Farmland markets have remained relatively strong, despite ongoing declines in most areas, and lending connected to farm real estate has continued to rise at a steady pace. However, producers still appear to be cautious in financing non-real estate purchases as income in the farm sector has remained suppressed. If farm income remains low, agricultural lenders may need to adjust to an environment of persistently sluggish loan growth and heightened risk in their farm loan portfolio.

Photo & story source: Kansas City Federal Reserve Bank

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