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. This moderation was more pronounced in areas hit hardest by drought, but more tempered in areas most concentrated in cattle production. Despite softening farm finances and substantially higher interest rates, agricultural real estate values in the region remained firm.

Despite this weakening of conditions, ag loan performance has remained solid with ongoing support from strong finances during the past two years. This is due to a combination of factors, including a significant improvement that continued to support loan performance over the past two years. Additionally, despite recent fluctuations in commodity prices and elevated production costs, demand for key products remains strong.

However, this stability may be short-lived as many farmers have likely seen a drop in the price of their key products during the past year. This reduction in farm income could lead to further challenges for ag businesses and households in the region moving forward. To address these challenges, policymakers must continue to provide targeted support to help farmers adapt to changing market conditions and maintain financial stability.