Kansas City Fed survey reveals soaring farm real estate values, loan repayment rates

A 2Q 2021 survey of Federal Reserve Bank of Kansas City-area bankers revealed soaring farm real estate values and record loan repayment rates. 

More than 150 banks responded to the survey of agricultural credit conditions in the 10th Federal Reserve District, an area spanning Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri. 

According to the Kansas City Fed, the outlook for profit opportunities remained strong this year for most agriculture producers as commodity prices remained well above recent years. Farm income and credit conditions in the 10th District remained strong through 1Q 2021, corresponding with the strongest year-to-year turnaround in farm income since the survey began collecting such information in 2002. Approximately 80 percent of bankers surveyed in June reported farm income as being higher than the previous year, contributing to less demand for farm loans and easing credit issues. With support from the strong farm economy and historically low interest rates, farm real estate values increased 10 percent from a year ago, which was the largest increase since 2013.

“The increase in land values is making it difficult for both crop and livestock producers to afford purchasing based on the amount of return they generate from production,” a northeast Oklahoma-based banker said in the report. 

 Loan repayment rates increased from 2020 at the fastest pace on record while renewals and extensions continued to decline. Bankers reported that only 15 percent of farm loans had repayment problems, including just 5 percent with major or severe issues. 

More than half of survey respondents reported capital spending as being higher than a year ago among farm borrowers, matching the survey record. Eighty percent of all lenders reported that expenses for all producers were at least modestly higher than 2020. The share reporting an increase in capital spending was higher than 1Q 2021 in all states except for Colorado, Wyoming and New Mexico, and remained well above the average of recent years. Most bankers reported that planned expenses for both crop and livestock producers increased relative to a year ago. However, one east Kansas-based banker expressed doubt that the spending increase would last. 

“Supply constraints have pushed input expenses higher and the limited availability of equipment will slow capital spending,” the banker said. 

Bankers did express concern over some components of the ag economy. Cattle industry conditions remained somewhat weaker, and the ongoing drought continued to hinder conditions for farmers and ranchers in some areas of the district. Nearly all banks reported increased production expenses for both crop and livestock producers, and cash rental rates also increased, which, according to the Kansas City Fed, “could pressure margins going forward.” 

“Despite potential headwinds, bankers indicated they expected improvement in farm income and credit conditions to continue in the months ahead,” the report stated.