During the third quarter of 2023, agricultural credit conditions in the Kansas City Fed’s Tenth District softened, with farm income and loan repayment rates lower than a year ago for the second straight quarter. While this moderation was more pronounced in areas hit hardest by drought, it was more tempered in areas most concentrated in cattle production. Despite the softening of farm finances and substantially higher interest rates, agricultural real estate values in the region remained firm.

Conditions have weakened slightly following two years of significant improvement that continued to support loan performance. The ag economy has softened in recent quarters alongside a moderation in commodity prices. Together with elevated production costs, a drop in the price of many key products during the past year has likely reduced farm income in 2023. However, despite these challenges, ag loan performance has remained solid with ongoing support from strong finances during the past two years.