Ag Credit Outlook: Farm debt balances up, but loan performance steady, delinquency rates drop

As production costs escalate and interest rates climb, agricultural producers find themselves increasingly reliant on credit. However, in a contrast to some sectors of the economy, the agricultural credit outlook still stands as a bastion of strength despite a rise in farm debt.

According to a recent report from the Kansas City Federal Reserve, robust farm finances are buoying loan performances, with delinquencies dropping for the third consecutive year and reaching their lowest levels since 2010 during the second quarter of this year. Yet, despite this promising resilience, there’s a caveat—farm debt is on the rise, marking its most significant increase since 2016.

While the costs of farming continue to escalate, access to credit is more vital than ever for growers across the country. As production costs spiral upwards and interest rates edge higher, farmers have been tapping into credit lines to bridge the financial gap. Unlike other segments of the economy, the agricultural credit landscape seems to remain robust.

The Kansas City Federal Reserve highlighted the strength of farm finances as the driving force behind this buoyancy in the credit sector. However, not all is smooth sailing. A minor uptick in short-term late payments raises a cautionary flag. One noticeable shift is the increase in farm debt, a phenomenon observed across more than half of all banks. This uptick in farm debt is the most substantial seen since 2016.

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