Mounting Farm Debt . .

Cortney Cowley and Ty Kreitman, economists with the Federal Reserve Bank of Kansas City, say the volume of new farm operating loans at commercial banks increased 40% in the third quarter compared to the same quarter last year, the fastest rate since 2017 (Figure 3). The increase is on top of a 20% increase in the second quarter. Cowley and Kreitman write, "weak profit margins in the crop sector continued to weigh on the farm economy even as prospects in the cattle industry remained strong. Farm operating debt has grown at a rapid pace alongside lower crop prices and persistently high production costs."

Lending activity for other types of farm loans, though, has softened. A deterioration in farm liquidity and higher interest rates have reduced the demand for machinery and reduced spending on discretionary purchases, contributing to an overall decline in non-real estate lending. However, the number of loans exceeding $1 million increased sharply in the quarter. Cowley and Kreitman write, "For the first time in at least two decades, the volume of loans larger than $1 million eclipsed the volume of loans smaller than $1 million." Finally, average interest rates on farm loans remained above 8% in the third quarter, well above average rates from two years ago.

FIGURE 3. VOLUME ON NON-REAL ESTATE FARM LOANS

Source: Cortney Cowley and Ty Kreitman, Large Operating Loans Continue to Drive Growth in Farm Lending Activity, Ag Finance Update, Kansas City Federal Reserve, October 25, 2024.