Source: Federal Reserve Bank of Kansas City

Farm debt continued to increase alongside faster growth in farm production loans. Even as debt balances continued to grow, farm loan performance remained strong and delinquency rates edged lower for the third consecutive year.

The net interest margin and return on assets at agricultural banks were higher than a year ago, but softened slightly from the previous quarter as funding costs for lenders continued to rise.

The outlook for agricultural credit conditions remained strong despite a recent moderation in the farm economy. A slight pullback in the prices of key farm products and elevated expenses could thin margins for some producers, but farm finances remained strong following several years of considerable strength.

Rising production costs and depletion of working capital could further increase credit needs, particularly for producers who have used cash reserves to reduce loan levels in recent years. Although a growing share of lenders expect farm income and repayment rates to soften in the months ahead, agricultural credit conditions are likely to remain strong through 2023.

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