New non-real estate farm lending activity at commercial banks continued to decline in the fourth quarter, according to the Federal Reserve Bank of Kansas City. According to its Survey of Terms of Lending to Farmers, the volume of new non-real estate farm loans was about 15% less than a year ago during the final months of 2023. The number of new loans increased from a year ago, but average loan sizes were notably lower, with the average loan size adjusted for inflation was the lowest since 2017. The sharp climb in farm loan interest rates abated during the quarter as average rates increased modestly for some types of loans and dropped slightly for others.
Despite a reduction in new loans made over the past year, outstanding farm debt balances reported by commercial banks grew steadily through the third quarter of 2023. Many lenders continued to report subdued demand for farm loans, while others highlighted growing demand. Elevated production costs, higher interest expenses and lower commodity prices have increased financing needs of many producers, however, strong liquidity built up in recent years likely supplemented borrowing needs of some operations throughout the year.
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