The regional farm economy was steady in the second quarter as farm values increased on average by nearly eight percent, according to a recent Federal Reserve Bank of Kansas City report.
Drought conditions early in the second quarter were followed by heavy rain, causing challenges with winter wheat harvest and spring planting, according to the report. “Some agricultural bankers commented that decreased grain prices, weather volatility and stable production expenses could reduce borrower liquidity that had been very strong during renewal season,” the KC Fed stated. “Higher interest rates have also increased borrowing costs for farmers, but loan demand has remained stable, and bank liquidity remained sound despite a slight pullback in deposit balances.”
According to the report, cost increases moderated from last year during the second quarter. Ag lenders expected loan demand to rise and repayment rates to fall in coming months. “The share of lenders reporting that farm incomes were lower than a year ago rose for the fourth consecutive quarter, and more than a third of respondents anticipated weaker conditions than last year in the next three months,” the KC Fed stated.
Regional farm liquidity fell for the first time since 2020 amid expense pressure and softened commodity prices. Bank liquidity also fell in recent months as deposit growth eased. “Deposit balances were less than a year ago for many lenders, but liquidity at agricultural banks has remained sound following several years of strong deposit growth and subdued loan demand,” the report stated.