Agricultural credit conditions in the Central Plains softened during the third quarter. But despite weakening farm finances and substantially higher interest rates, agricultural real estate values remain firm. That’s according to the quarterly survey of district ag bankers conducted by the Federal Reserve Bank of Kansas City.
The bank says farm income and loan repayment rates were lower than a year ago for the second quarter in a row. “The moderation was more pronounced in areas most impacted by drought, but more tempered in areas most concentrated in cattle production,” note bank economists Nate Kauffman and Ty Kreitman who conduct the survey.
The bank says farm income prospects have dimmed for crop producers due to weakening commodity prices, higher input costs and higher interest rates. However, income prospects for ranchers and cattle feeders have improved. Despite softening incomes and high interest costs, agricultural loan performance has remained solid with support from strong finances that bolstered the sector over the past two years.
Prospects for income were comparably worse in some states, depending on their industry concentration, they note. Farm income was higher than a year ago in states more dependent on cattle production such as Oklahoma and the Mountain States. In contrast, conditions deteriorated at a moderate pace in Kansas and Nebraska which have many areas dependent on revenue from corn, soybeans, and wheat.
Farm real estate values remained positive in the third quarter compared to a year earlier. However, the rate of increase has eased. Dryland cropland shows a gain of 5.5% compared to a 7.7% gain in the second quarter and a strong 22.5% annual increase in the third quarter of 2022. Irrigated cropland is up 9.8% for the quarter versus a 7.8% boost the prior quarter and a 17.9% surge a year earlier. Ranchland lists a strong 12.6% increase compared to the 8.1% gain the previous quarter and a 19.0% rise a year earlier.
The survey says cash rent on nonirrigated cropland rose 2% in the quarter. Rent on irrigated ground ticked higher while rent on ranchland declined.