Similar to recent quarters, farm loan repayment rates increased at a rapid pace and loan demand remained subdued. Bankers in participating Federal Reserve Districts also continued to report further increases in farm income. With support from stronger farm finances and historically low interest rates, farmland values increased by at least 10% in nearly all states.

The sharp rebound in the U.S. farm economy over the past year has bolstered farm income and credit conditions. Profit opportunities in the cattle industry remained more limited than other major commodities and ongoing drought also has created headwinds for some producers. However, strong support from government aid programs has provided ongoing support and the outlook for farm finances in 2021 has remained strong based on recent reports across Federal Reserve Districts.

Data and Information

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Second Quarter Federal Reserve District Ag Credit Surveys

Agricultural credit conditions continued to improve throughout the U.S. according to Federal Reserve Surveys of Agricultural Credit Conditions. Farm loan repayment rates increased from a year ago at a pace similar to the prior quarter in all Districts (Chart 1, left panel). In addition to easing credit stress, loan demand was less than a year ago in all regions and marked about a year of softening for most Districts (Chart 1, right panel).

Chart 1: Farm Loan Repayment Rates and Loan Demand -includes two individual charts. Left, Farm Loan Repayment Rates: is a clustered column chart showing the diffusion index* of farm loan repayment rates for the Chicago, Dallas, Kansas City, Minneapolis and St. Louis Districts. Each of the Districts includes columns for 2015-2019 Average, 2020 Average, Q1 2021 and Q2 2021. Right, Farm Loan Demand, is a clustered column chart showing the diffusion index* of farm loan demand for the Chicago, Dallas, Kansas City, Minneapolis and St. Louis Districts. Each of the Districts includes columns for 2015-2019 Average, 2020 Average, Q1 2021 and Q2 2021.   *Bankers responded by indicating whether conditions during the current quarter was higher than, lower than or the same as in the year-earlier period. The index numbers are computed by subtracting the percentage of bankers who responded "lower" from the percentage who responded "higher" and adding 100. Sources: Federal Reserve District Surveys of Agricultural Credit Conditions.

The swift turn-around in agricultural credit conditions continued to be supported by stronger farm income. Similar to last quarter, farm income increased substantially from a year ago throughout all participating Districts (Chart 2). In the Kansas City, Minneapolis and St. Louis Districts, the majority of bankers reported that income was higher than the same time a year ago and less than 10% reported incomes were lower.

Chart 2: Farm Income - is a clustered column chart showing the diffusion index* of farm income rates for the Kansas City, Minneapolis and St. Louis Districts. Each of the Districts includes columns for 2015-2019 Average, 2020 Average, Q1 2021 and Q2 2021.   *Bankers responded by indicating whether conditions during the current quarter was higher than, lower than or the same as in the year-earlier period. The index numbers are computed by subtracting the percentage of bankers who responded "lower" from the percentage who responded "higher" and adding 100. Sources: Federal Reserve District Surveys of Agricultural Credit Conditions.

In addition to stronger farm income and credit conditions, average interest rates also declined further. The average rate on all types of loans across all participating Districts decreased slightly from the previous quarter and remained at historic lows (Chart 3). Compared with the beginning of 2019, average fixed and variable rates on all loan types were about 150 basis points and 160 basis points lower, respectively.

Chart 3: Average Interest Rates by Loan Type*- includes two individual charts. Left, Fixed: is a line graph showing the average fixed interest rate in all applicable Districts in all quarters from 2010 to 2021, with individual lines for operating, intermediate and real estate loans. Right, Variable is a line graph showing the average variable interest rate in all applicable Districts in all quarters from 2010 to 2021, with individual lines for operating, intermediate and real estate loans.  *Average interest rate across all Districts with applicable data. Includes Chicago, Dallas, Kansas City, Minneapolis, St. Louis Districts. Note: St. Louis survey began Q2 2012. Chicago District survey includes only fixed operating and real estate loans.  Sources: Federal Reserve District Surveys of Agricultural Credit Conditions.

The slight decline in interest rates from the previous quarter was largely consistent across all regions. The average fixed rate on both operating and farm real estate loans reached new all-time lows in every District except Dallas (Chart 4). On average, rates for farm operating and real estate loans in the second quarter were about 90 basis points and 100 basis points below the average from 2015 to 2019, respectively.

Chart 4: Average Fixed and Variable Interest Rates by District – includes two individual charts. Left, Farm Operating Loans: is a clustered column chart showing the average interest rate on farm operating loans for the Chicago, Dallas, Kansas City, Minneapolis and St. Louis Districts. Each of the Districts includes columns for 2015-2019 Average, Q1 2021 and Q2 2021. Right, Farm Real Estate Loans: is a clustered column chart showing the average interest rate on farm real estate loans for the Chicago, Dallas, Kansas City, Minneapolis and St. Louis Districts. Each of the Districts includes columns for 2015-2019 Average, Q1 2021 and Q2 2021.  Note: Chicago District survey includes only fixed operating and real estate loans. Sources: Federal Reserve District Surveys of Agricultural Credit Conditions.

The notable improvement in farm finances and historically low interest rates supported strong gains in farmland values. The value of nonirrigated cropland rose by at least 10% in nearly all states in the participating Districts (Map). The increase from a year ago was largest in South Dakota, Minnesota, and Iowa and smallest in North Dakota and the Mountain States.

Map: Nonirrigated Cropland Values, Second Quarter 2021 - is a map showing the percent change in nonirrigated cropland values from the previous in Q2 2021 for the following individual states from north to south: North Dakota, Minnesota, South Dakota, Southern Wisconsin, Nebraska, Iowa, Northern Illinois, Norther Indiana, Mountain States*, Kansas, Western Missouri, FRB St. Louis District, Oklahoma and Texas.   *Mountain States include Colorado, northern New Mexico and Wyoming, which are grouped because of limited survey responses from each state. Sources: Federal Reserve District Surveys of Agricultural Credit Conditions

The views expressed in this article are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System. 

Authors

Nathan Kauffman

Vice President, Economist and Omaha Branch Executive

Nathan Kauffman is vice president and Omaha Branch executive with the Federal Reserve Bank of Kansas City. In his role as the Bank’s lead economist and representative in the stat…

Ty Kreitman

Assistant Economist

Ty Kreitman is an assistant economist in the Regional Affairs Department at the Omaha Branch of the Federal Reserve Bank of Kansas City. In this role, he primarily supports the F…