Ag Credit Conditions Recover in Third Quarter

Farm income and loan repayment rates recovered from sharp declines in the second quarter, and demand for credit softened according to Federal Reserve Ag Credit Surveys. Although farm income generally remained low, loan repayment rates stabilized, and farmland real estate markets remained strong. Farm loan demand moderated in all Federal Reserve districts for the first time since 2013 in the third quarter. Funding at agricultural banks was likely supported by higher deposits and an influx of liquidity from Federal Reserve and government programs following the COVID-19 outbreak.

The Fed said an influx of government payments and higher prices for agricultural commodities provided greater support for farm finances in the third quarter and seemed to limit demand for financing. Despite some improvements in the agricultural economy, farm income and repayment rates remained low, albeit not as low as in the second quarter. Increased uncertainty related to the pandemic may also have curbed some demand for new loans and could continue to weigh on agricultural lending conditions moving forward.

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