In the third quarter of 2023, agricultural credit conditions in the Kansas City Fed’s Tenth District showed signs of softening. This was evidenced by lower farm income and loan repayment rates compared to the previous year, marking the second consecutive quarter of decline. Despite this moderation, agricultural real estate values in the region remained stable.
The ag economy has been affected by a softening trend in recent quarters, a trend that has coincided with a moderation in commodity prices. The combination of elevated production costs and a decrease in the price of key products over the past year is likely to have contributed to a reduction in farm income in 2023. However, despite the softening incomes and higher interest costs, the performance of agricultural loans has remained strong, thanks in part to the solid financial position cultivated over the past two years.
In areas heavily affected by drought, such as those located in western Kansas and Nebraska, this shift was more evident. On the other hand, areas more focused on cattle production experienced a more tempered effect due to their ability to diversify their revenue streams through alternative sources such as feedlots and meat processing plants.
The moderation in loan performance is attributed to several factors including increased competition from non-traditional lenders such as fintech companies and online lenders who offer lower interest rates and faster approval times for loans. Additionally, changes in government policies related to trade agreements and subsidies also played a significant role in affecting loan performance.
Overall, while there are challenges facing agriculture producers in Kansas City Fed’s Tenth District, they continue to adapt and innovate to remain competitive while maintaining solid financial positions that support their long-term sustainability.