The Kansas City Fed said last week that the outlook for agricultural credit conditions in its Tenth District improved in the third quarter, due in part to rising commodity prices and additional government aid to producers. After dropping sharply in the second quarter due to COVID-19 disruptions, prices for most ag commodities began to rebound during the summer.
The Fed report says increasing demand supported additional increases in crop prices through the third quarter and into October, expanding profit opportunities for many producers going into the harvest season. As a result, credit conditions deteriorated at a significantly slower pace. The number of bankers reporting declines in farm income and loan repayment rates dropped from the prior quarter.
About 55 percent of ag bankers in the district reported lower incomes than a year ago, compared with 75 percent in the second quarter of 2020. Recent developments are leading to more optimistic expectations through the end of the year. Following years of steady growth, demand for farm loans appeared to decrease.
About 25 percent of bankers reported that loan demand was lower than last year, the highest number since 2013. Loan repayment challenges are expected to ease across most types of farm operations in the district through the next three months.