Farm economy presents mixed financial signals

When assessing the farm economy, Ty Kreitman says there are different ways to measure its condition, and challenges are constant.

Kreitman is an associate economist in the Regional Affairs Department at the Omaha branch of the Federal Reserve Bank of Kansas City. In this role, he contributes to the Center for Agriculture and the Economy, a Kansas City Fed initiative focused on strengthening the Federal Reserve’s ties to agriculture and rural communities through research, data and industry engagement.

In October, the Kansas City Fed released its quarterly farm lending report. Farm lending activity at commercial banks was muted in the third quarter alongside a decline in average loan sizes. According to the National Survey of Terms of Lending to Farmers, the volume of new non-real estate farm loans declined compared with the previous year for the second consecutive quarter.

Reduced activity was primarily attributed to a decrease in the average size of operating loans, particularly at small and midsize lenders. During the survey period in early August, average interest rates on farm loans were relatively stable.

The outlook for the agricultural economy remained tenuous, but lending activity had eased as crop prices increased notably in recent months, Kreitman wrote. The considerable increase in prices of most major crops has mitigated the recent surge in diesel prices and could improve profit opportunities and slow deterioration in farm liquidity. In addition, support from the Farmer Bridge Assistance Program earlier this year, upcoming distribution of crop insurance payments and strength in the cattle sector have helped keep financial stress in the agricultural sector moderate.

The volume of non-real estate loans at commercial banks was about 25% lower than a year ago during the third quarter. The decline was primarily attributed to a sharp drop in operating loans, but the volume of livestock lending also decreased.

Farmland values continue to be strong, which has sustained balance sheets, he said. Money from the One Big Beautiful Bill Act and ad hoc payments from the Biden and Trump administrations have supported cash flow.

Crop farmers have dealt with elevated input costs, and while ranchers have enjoyed high prices because of a historically small cattle herd, they also have faced drought conditions in key High Plains states that have prevented expansion.

Those stresses have contributed to what Kreitman terms a modest deterioration in financial conditions over the past several years. He added that some operations and borrowers are more vulnerable, particularly beginning operators who may have less collateral.

Federal government payments have helped keep the deterioration modest, he said. The One Big Beautiful Bill Act, passed in July 2025, has provided more than $13 billion to farmers through Agriculture Risk Coverage and Price Loss Coverage programs. The Trump administration also announced an $8 billion harvest fuel relief program.

“Those are providing some strength,” Kreitman said. “You also have to consider that (financial) strength was built up in those 2020 to 2022 period.”

Those producers continue to be in a strong position, he said. Land values have held firm at high levels. Farmland values have increased only modestly in the past couple of years, while ranchland values have risen.

40 years ago

Kreitman said farm and ranch operators have faced significant turbulence before. He often is asked to compare current conditions with the farm crisis of the 1980s, considered by many agricultural economists the most difficult decade since the 1930s.

However, today’s data tell a different story, and regulatory oversight is tighter than it was during that era, he said. The agricultural sector’s debt-to-asset ratio is considerably lower today than in the 1980s. Interest rates were much higher then, and compounding interest quickly added to losses.

Lenders rely less on collateral lending today, Kreitman said. When a customer experiences losses, bankers restructure loans to meet cash flow needs.

Stable real estate values have helped reduce leverage risks, and farmers today are able to take on more acres, he said. Interest rates have dipped slightly over the past two years, although the Fed is watching inflation and did have a quarter-percentage-point increase this summer.

Interest rates are elevated from a recent historical perspective, and that has an effect when a producer is thinking about capital spending, buying new equipment or buying more land, Kreitman said.

Farmers and ranchers also must be diligent when extending lines of credit because higher interest rates may require them to draw down more equity, he said.

That affects agriculture.

For now, land values have stayed “pretty steady” in the Kansas City Fed states—Colorado, Kansas, Nebraska, Oklahoma, Wyoming and parts of Missouri and New Mexico, he said.

Non-irrigated farmland values have been flat year over year for the past couple of quarters, Kreitman said. Irrigated land values have continued to grow, but aggregate growth has slowed to less than 5%.

Rangeland values have increased 5% to 10% in the survey, signaling the strength of livestock prices.

Volatility

Commodity markets have experienced considerable volatility in recent months, and that will affect farmers and ranchers as they plan for 2027, he said. Government payments should help smooth some of the stress from fuel and fertilizer costs. Elevated expenses are expected to persist for the next six to 12 months, he said.

Assessing the outlook remains difficult.

“If we strip out all the noise and even take a long-term perspective, we see that the global of major crop commodities—minus major disruptions and weather—it continues to break records,” he said. “We continue to see strong global production and at the same time we haven’t seen a big demand driver or growth that can push demand higher or at the same rate as supply.”

The result is an oversupply of crops, although biofuels and trade can help offset supplies, Kreitman said.

“If we strip away everything, things are not necessarily supportive of an environment where we’re going to have $7 a bushel corn anytime soon,” Kreitman said. “I think we have to acknowledge that and understand the economic fundamentals in the crop market and then make our decisions and investment based on that.”

Drawing on his background in production agriculture, Kreitman said farmers and ranchers face many challenges that create uncertainty. The Fed’s role, he added, is to provide as objective an opinion as possible as conditions develop “and wish the best for everyone.”

Dave Bergmeier can be reached at 620-227-1822 or [email protected].