During the third quarter of 2023, agricultural credit conditions in the Kansas City Fed’s Tenth District softened. 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 softening farm finances and substantially higher interest rates, agricultural real estate values in the region remained firm.
The ag economy has softened slightly following two years of significant improvement that continued to support loan performance. The moderation was likely due to a drop in the price of many key products during the past year, which reduced farm income alongside a moderation in commodity prices. This was despite elevated production costs. Despite these challenges, ag loan performance has remained solid with ongoing support from strong finances during the past two years.