During the third quarter of 2023, agricultural credit conditions in the Kansas City Fed’s Tenth District softened for the second straight quarter. While farm income and loan repayment rates were lower than a year ago, this moderation was more pronounced in areas hit hardest by drought and less tempered in areas most concentrated in cattle production. Despite softening finances and substantially higher interest rates, agricultural real estate values in the region remained firm.
This weakened performance can be attributed to two years of significant improvement that continued to support loan performance. The ag economy has softened alongside a moderation in commodity prices, which has likely reduced farm income in 2023. Additionally, elevated production costs have also played a role in reducing profitability for farmers. Despite these challenges, ag loan performance has remained solid with ongoing support from strong finances during the past two years.