Bankers’ responses to the latest Kansas City Federal Reserve Bank Survey of Agricultural Credit Conditions showed farm financial conditions in the Tenth District continued to deteriorate compared to a year ago. About 60% of bank respondents reported farm income was lower than a year ago. Only 10% reported an increase, which was the lowest share since 2020.
More bankers in Nebraska reported reduced farm incomes than any other state in the Tenth District (Figure 3). Kansas and Missouri reported notably weakened incomes as well. Federal Reserve economists Francisco Scott and Ty Kreitman noted farm incomes were comparably weaker in areas more concentrated in crop production. The responses also showed loan repayments were a bit slower, problem loan rates grew, and loan demand increased as working capital declined compared to a year ago.
One Nebraska banker noted that, “Summer farm inspections almost all indicated deterioration of working capital with almost no exceptions.” On average, bankers reported about 6% of banks’ loan portfolios were on the watch list and 3% were on the classified lists. The watch list are loans being closely monitored and the classified lists are ones with a defined weakness like insolvency or inadequate debt service.
While both measures are a tick higher compared to a year ago, they are still less than 2015-2019 averages, the last time farm incomes were similarly low. Nebraska led the Tenth District with 8% of loan portfolios on the watch list. Oklahoma topped the district with roughly 3.5% of loan portfolios on the classified list.
High cattle prices are a positive for some areas. One Nebraska banker said, “High calf prices are having a positive impact on cow/calf operations.” The survey also showed the value of agricultural land is stable. The value of non-irrigated cropland was 5% higher than one year ago, irrigated cropland rose 0.3%, and ranchland values increased 1.6%.
However, overall, Scott and Kreitman say the reduction in profits for crop producers has weakened farm balance sheets, increased demand for financing and could put further pressure on agricultural credit conditions moving forward.