Farm lending activity continued to gradually increase along with further growth in loan sizes. The Kansas City Federal Reserve says the average size of non-real estate farm loans was about 20 percent higher than a year ago and drove an increase in lending volumes for the fourth straight quarter.
Average interest rates on farm loans rose sharply alongside higher benchmark rates and reached a ten-year high, putting additional upward pressure on financing costs. The outlook for farm finances remained favorable alongside elevated commodity prices, but increased interest rates, challenging weather, and high production costs remain key concerns.
Higher expenses contributed to a rebound in lending last year, but strong income and liquidity likely limited the financing needs of many producers. Looking ahead, elevated operating expenses could put additional upward pressure on loan demand. Lending activity was seven percent higher than last year. Production expenses have increased by 15 percent since 2020.