MT. JULIET, Tenn. (DTN) -- The Kansas City Federal Reserve's quarterly survey of lenders shows sharply lower farm incomes, deteriorating working capital and higher demand for non-real estate loans.

"Despite the moderation in credit conditions and interest rates remaining at multi-decade highs, farm real estate values remain firm," wrote agricultural economists Francisco Scott and Ty Kreitman in a summary of the results of the Survey of Agriculture Credit Conditions, which includes responses from 135 bankers.

The value of non-irrigated cropland was 5% higher in the third quarter of 2024 than the year before. Irrigated cropland and ranchland values increased modestly at 0.3% and 1.6%, respectively. Cash rents on cropland were nearly unchanged, while pasture rents increased about 4%.

Interest rates on farm loans slid 15 basis points lower on average in the 3rd quarter, with average rates on operating loans averaging between 8% to 9%.

"The spread between rates on operating loans and farm real estate reached 81 basis points, about twice as high as the average observed after 2010," the economists said.

Other than the strength of land values, the economists expect the rest of 2024 to "remain subdued alongside weak crop prices."

Sixty percent of respondents reported farm income that was lower than the previous year, with crop-heavy areas in Kansas, Missouri and Nebraska feeling the most pain.

Strong cattle prices have provided support to incomes in some regions. In Oklahoma, for instance, 30% of lenders reported lower incomes while another 30% said they expect higher incomes.

"The considerable reduction in profits for crop producers has weakened farm balance sheets, increased demand for financing and could put further pressure on agricultural credit conditions in the months ahead," Kreitman and Scott wrote.

About 25% of the lenders say loan repayment rates have declined, and 40% say they expect rates of repayment to decline in the year ahead. Overall, loans for corn, soybean and wheat growers show the most cause for concern.

"Alongside tighter repayment capacity, loan quality weakened slightly across the region. On average, about 6% and 3% of responding banks' loan portfolios were on the watch and classified lists, respectively," they said. "Lenders in nearly all states reported a slight increase in problem loan rates following historically strong loan quality in recent years."

You can read the entire report here: https://www.kansascityfed.org/…

Katie Dehlinger can be reached at katie.dehlinger@dtn.com

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