Farm lending activity at commercial banks was muted in the third quarter alongside a decline in average loan sizes. According to the National Survey of Terms of Lending to Farmers, the volume of new non-real estate farm loans declined compared with the previous year for the second consecutive quarter. Reduced activity was primarily attributed to a decrease in the average size of operating loans that was particularly pronounced at small and mid-sized lenders. During the survey period in early August, average interest rates on farm loans were relatively stable.
The outlook for the agricultural economy remained tenuous but lending activity has eased as crop prices have increased notably in recent months. The considerable increase in prices of most major crops has External Linkmitigated the recent surge in diesel prices and could improve profit opportunities and slow deterioration in farm liquidity. In addition, support from the Farmer Bridge Assistance Program earlier this year, upcoming distribution of crop insurance payments, and strength in the cattle sector have External Linkhelped keep financial stress in the agricultural sector moderate.
Third Quarter National Survey of Terms of Lending to Farmers
Non-real estate lending was subdued alongside a decline in operating loans. The volume of non-real estate loans at commercial banks was about 25% lower than a year ago during the third quarter (Chart 1). The decline was primarily attributed to a sharp drop in operating loans, but the volume of livestock lending also decreased.
Chart 1: Volume of Non-Real Estate Farm Loans
Sources: Survey of Terms of Lending to Farmers and Federal Reserve Bank of Kansas City
Lower lending volumes were driven by smaller loan sizes, particularly at small and mid-sized banks. The average size of new operating loans at banks with portfolios less than $100 million dropped to about $30,000 after reaching more than $100,000 during the third quarter of the previous two years (Chart 2). The decline in average loan size was less pronounced among larger lenders but dropped to $115,000 from $150,000 a year ago.
Chart 2: Average Size of Farm Operating Loans by Farm Loan Portfolio Size, Q3
Sources: Survey of Terms of Lending to Farmers and Federal Reserve Bank of Kansas City
Interest rates on non-real estate farm loans were relatively stable during the survey period. Ahead of the increase in benchmark interest rates more recently, the average rate on farm loans was similar to the previous quarter across lenders of all sizes (Chart 3). Compared with a year ago, average rates declined slightly more at banks with the largest farm loan portfolios.
Chart 3: Average Interest Rate on Non-Real Estate Farm Loans by Farm Loan Portfolio Size
Sources: Survey of Terms of Lending to Farmers and Federal Reserve Bank of Kansas City
National Survey of Terms of Lending to Farmers Historical Data
National Survey of Terms of Lending to Farmers Data Tables
External LinkAbout National Survey of Terms of Lending to Farmers Data
The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
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