Loan activity was strong in the second quarter as low interest rates and high input costs sparked demand, according to a report from the Federal Reserve Bank of Kansas City.
Non-real estate farm loan volumes grew by approximately 17 percent for the second straight quarter, according to the Kansas City Fed’s second quarter national survey of terms of lending to farmers. The average size of non-real estate farm loans has increased by nearly 50 percent at commercial banks over the past 10 years as farm costs and the size and scale of ag operations have soared.
As benchmark rates increased, the share of operating loans with a rate above 5 percent nearly doubled from the same time in 2021, according to the report, and was higher than the same point in 2015. A greater share of farm real estate loans carried a higher interest rate but remained lower than seven years ago. The maturity period on most types of ag loans also increased.
“The volume of non-real estate agricultural loans grew at a steady pace alongside an increase in the number and average size of loans,” wrote Assistant Economist Ty Kreitman and Senior Economist Cortney Cowley. “Interest rates remained historically low but continued to increase from recent quarters on nearly all types of farm loans, as benchmark rates rose further. The average maturity of some types of loans, particularly real estate loans, also increased during the quarter and were above recent historic averages.”
Ag commodity prices remained high through the first half of the year, which continued to support farm income and revenue. A Kansas City Fed report from earlier this year found that U.S. wheat and corn commodity prices spiked 60 percent and 30 percent, respectively, during the first quarter of this year as Russia’s invasion of Ukraine continued to drive prices higher.