During the third quarter of 2023, the agricultural credit conditions in the Kansas City Fed’s Tenth District softened. Despite this, farm income and loan repayment rates were lower than a year ago for the second straight quarter. The moderation was more pronounced in areas hit hardest by drought, but more tempered in areas most concentrated in cattle production.
Despite the softening of farm finances and substantially higher interest rates, agricultural real estate values in the region remained firm. This is an indication that investors remain confident in the ag economy despite challenging conditions.
The ag economy has softened in recent quarters alongside a moderation in commodity prices. Together with elevated production costs, a drop in the price of many key products during the past year has likely reduced farm income in 2023. Despite this, ag loan performance has remained solid with ongoing support from strong finances during the past two years. This suggests that farmers are able to manage their debt despite challenging market conditions.