Interest Rates and Drought Pressuring a Still Strong Farm Economy

Interest rates on farm loans increased sharply in the third quarter, and the acceleration in farm real estate values continued to ease.

The Kansas City Fed says farm income and credit conditions remained solid, but the pace of improvement softened. The financial impact of the drought also intensified, particularly in the southern and western portions of the district.

Despite the recent headwinds, farm finances remained strong and continued to support sound agricultural loan performance. The outlook for the agricultural economy generally remains positive despite a recent pull back in prices for some key farm commodities.

Crop market volatility, higher expenses, and drought could hinder income opportunities for some producers, but prices for key crops and livestock remain at multi-year highs, and profit opportunities remain favorable across the farm sector.

The recent substantial improvement in farm finances and a surge in agricultural real estate values have also bolstered farmer balance sheets.

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