Farm real estate debt at commercial banks grew modestly in the first quarter, while production loans remained steady.
The Kansas City Federal Reserve Bank says alongside soaring farmland values, real estate loan balances increased at the fastest pace in four years and drove an increase in the overall amount of agricultural lending. Following a sharp pullback over the last two years, non-real estate lending was stable from a year ago. Farm loan performance also continued to improve, but performance at agricultural banks remained limited by compressed net interest margins and a glut of liquidity. The farm economy remained strong alongside decade-high commodity prices that continued to support farm finances.
Many producers have benefited immensely from strong cash balances, but credit needs may rise as higher input costs weigh on profit margins. Farm lending accelerated in recent months alongside an increase in the size of operating loans. Many bankers expect loan demand to continue climbing.