Smaller Operating Loans Slow Ag Lending Activity

Farm lending activity slowed further in the third quarter alongside a drop in operating loan volumes. The number of new non-real estate farm loans was flat compared to a year ago, while the average size shrank almost 20 percent.

The amount of operating loans over $1 million dropped notably. The Kansas City Fed says lending has softened alongside significant increases in farm loan interest rates that have put considerable upward pressure on financing costs. The farm economy has moderated in recent months as profit margins thinned alongside lower commodity prices and elevated expenses. Credit needs have increased for many borrowers because of high input costs, but strong liquidity built up in recent years has also allowed many producers to supplement additional loan advances.

Higher financing costs have prompted farmers with enough liquidity to limit debt usage, but any softening in farm finances could reduce reserves and increase loan demand.