A recent report from the Federal Reserve Bank of Kansas City says farm lending activity at commercial banks continued to be strong into the first quarter of 2025, while the pace of growth eased slightly.
According to the Kansas City Fed’s Survey of Terms of Lending to Farmers, the volume of farm operating loans increased sharply from a year ago alongside an increase in the number of large loans. Demand for non-real estate agricultural loans has grown over the past year alongside elevated production expenses and a contraction in farm-sector liquidity, Fed economists reported. The growth was recorded during the survey period in early February, ahead of recent distribution of assistance payments from the American Relief Act, which could potentially improve liquidity for some producers, the report said. Economists with the Kansas City Fed cautioned that crop prices are likely to continue weighing on financial conditions in the sector and could keep demand for financing elevated.
The volume of new non-real estate farm loan activity at commercial banks increased about 4% from a year ago. Loans for miscellaneous purposes “remained subdued,” while the volume of loans for key types of farm debt increased considerably more, according to the survey. The increase is largely attributed to loans for operating expenses, which grew by more than 30% for the third consecutive quarter.
The share of new loans larger than $500,000 increased sharply for the second consecutive year, rising to about 3.5% in the first quarter. Interest rates on most types of agricultural loans declined slightly. The average rate charged on non-real estate farm loans dropped, on average, by about 30 basis points from the previous quarter. Average rates were around 80 basis points lower than this time last year, but remained above the average of recent decades, according to survey findings.
