Farm lending activity at commercial banks 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 with a year ago while the average size shrank by nearly 20%. The amount of operating loans over $1 million dropped notably and the reduction in loan size contributed to the third consecutive quarter of declines in non-real estate farm loan volumes. Lending has softened alongside nearly two years of increases in farm loan interest rates that have put considerable upward pressure on financing costs.

The farm economy moderated in recent months as profit margins thinned alongside lower commodity prices and elevated expenses. Credit needs have increased for many borrowers alongside high input costs, but strong liquidity built up in recent years has also allowed many producers to supplement additional loan advances. Similarly, farm debt balances have grown during past quarters according to commercial bank call reports, but a sizable share of lenders have also reported subdued non-real estate loan demand in Federal Reserve District surveys. Considerably higher financing costs have likely prompted borrowers with ample liquidity to limit debt usage, but any softening in farm finances could reduce cash reserves and put upward pressure on lending demand.

Third Quarter National Survey of Terms of Lending to Farmers

A pullback in lending activity continued into the third quarter. The volume of new non-real estate farm loans at commercials banks dropped for the third consecutive quarter according to the Survey of Terms of Lending to Farmers, declining by an average of 10% over the past year (Chart 1). The decrease was largely attributed to operating loans, while loans for feeder livestock increased notably from a year ago alongside substantially higher cattle prices.

Chart 1: Volume of Non-Real Estate Farm Loans - is a column chart showing the four-quarter moving average percent change in non-real estate farm loans during each quarter from Q1 2000 to Q3 2023

A reduction in large loans pushed lending for operating expenses down. The share of operating loans of amounts greater than $1 million dropped considerably at banks in the survey and was the lowest since early 2019 (Chart 2, left panel). As a result, the volume of operating loans above the $1 million mark was cut by half from a year ago and volumes comprised of smaller sized notes also decreased by 15% (Chart 2, right panel).

Chart 2: Farm Operating Loans – is two individual charts: Right, Number of Loans Greater Than $1 Million as a Share of Operating Loans - is a line graph showing the percent of operating loans that had an amount of $1 million or more in each quarter from Q1 2011 to Q3 2023. Left, Volume of Loans by Size, Q3 – is a line graph showing the volume of loans that had amounts Great than $1 million and all others during the third quarter of every year from 2011 to 2023.

Lending slowed at larger lenders while increasing among smaller lenders. The volume of non-real estate lending at banks with farm loan portfolios below $25 million was nearly 25% above the recent average for the third quarter while volumes were 25% lower at large banks (Chart 3). The changes across bank size were in contrast to recent years and coincided with fewer large loans, which are more typical at bigger banks.

Chart 3: Farm Loan Volumes by Bank Size, Q3– is a clustered column chart showing the volume of non-real estate farm loans for Small or Mid-size Banks and Large Banks in the third quarter with columns for 2020, 2021, 2022, and 2023.

Lending has softened alongside sharp increases in interest rates. Average interest rates on all types of farm loans increased for the seventh consecutive quarter and reached the highest level since 2007 (Chart 4). The quick rise in rates has pushed up financing costs considerably and likely influenced producers’ decision making related to debt usage.

Chart 4: Average Interest Rates on Non-Real Estate Loans by Loan Type– is a clustered column chart showing the average interest rates on all non-real estate loans, feeder livestock, other livestock, operating expenses, farm machinery and equipment, and farm real estate with columns for 2015-2019 average, 2020 average, 2021 average, 2022 average, Q1 2023, Q2 2023, and Q3 2023.

As rates have risen, the average maturity of longer-term loans has increased notably. The average maturity of loans for operating costs, livestock purchases, and equipment remained near the recent historic average (Chart 5). In contrast, the average duration of new farm real estate loans has increased gradually over the past year and was more than 5 years longer than the average from 2010 to 2020.

Chart 5: Share of Non-Real Estate Loans with a Variable Interest Rate– is a clustered column chart showing the average maturity (months) on feeder livestock, other livestock, operating expenses, farm machinery and equipment, and farm real estate with columns for 2015-2019 average, 2020 average, 2021 average, 2022 average and Q3 2023.


Nate Kauffman

Senior Vice President, Economist, and Omaha Branch Executive

Nate Kauffman is Senior Vice President and Omaha Branch Executive at the Federal Reserve Bank of Kansas City. In his role as the Kansas City Fed's lead economist and represe…

Ty Kreitman

Associate Economist

Ty Kreitman is an associate 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…