Even with high input costs, agricultural condition ratings are showing strength. The latest round of agricultural credit condition surveys from the Federal Reserve banks show high farm real estate values are supporting farm finances.
This strength is exhibited in several key metrics, write Nathan Kauffman, Federal Reserve Bank of Kansas City vice president, economist and Omaha branch executive, and Ty Kreitman, Federal Reserve Bank of Kansas City assistant economist.
“The outlook for agricultural credit conditions remained optimistic alongside persistently strong commodity prices,” the two write. “However, many lenders expected conditions to soften in coming months alongside the pressures to profit margins from higher input costs and harsh drought conditions in large portions of the country. Farm real estate markets also remained strong, but reduced profit margins or higher interest rates could limit gains in land values in the year ahead.”
1. High Farm Real Estate Values
Growth in farm real estate values remained high and accelerated in some regions. Similar to the previous quarter, the value of non-irrigated cropland rose by more than 20% from a year ago in Federal Reserve Districts with a large agricultural concentration (Chart 1).
The annual pace of growth increased from the previous quarter in the Dallas and Chicago districts. The value of non-irrigated cropland increased by more than 20% in the majority of states represented in the participating Districts during the first quarter (map). The increase was particularly sharp in Iowa, Kansas and the Mountain States where values were about 30% higher than a year ago.
2. Interest Rates on the Rise
The average fixed rate charged on farm loans increased in all districts following an increase in the federal funds rate in mid-March (Chart 2). Fixed rates increased by an average of 20 basis points from the previous quarter across all regions, with a slightly faster rise in the Chicago District.
3. Farm Loan Repayment Rates Also the Rise
Farm loan repayment rates increased at a pace similar to recent quarters in most regions and rose at a slightly faster pace in the Chicago and Minneapolis Districts (Chart 3). It marked the fifth consecutive quarter of higher rates of repayment in nearly all regions.
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