The Farm Economy Explained in 5 Charts

The tide has turned, and it turned rapidly. The latest round of agricultural credit condition surveys from the Federal Reserve banks shows improved strength in the agricultural economy.

This strength is exhibited in several key metrics, write Nathan Kauffman, Federal Reserve Bank of Kansas City vice president, economist and Omaha branch executive, and Ty Kreitman, Federal Reserve Bank of Kansas City assistant economist. Those metrics include farm income, farm loan repayment rates, overall farm loan demand, interest rates and farmland values.

“Strength in markets for most major agricultural commodities has led to higher prices and expanded profit opportunities across the sector in recent months,” write Kauffman and Kreitman. “Together with robust financial support from government aid programs related to the pandemic, conditions have led to a rapid improvement in farm finances.”

Let’s dig into each metric.

Compared to recent years, farm loan repayment rates increased rapidly across the bulk of farm country in the first quarter. Repayment rates were higher across all areas in the same quarter for the first time since 2013.

 
Overall demand for farm loans is reduced. In addition, renewal and extension activity dropped considerably in some areas. Demand for loans dropped at a slightly faster pace in the Chicago and Minneapolis Districts than others.

Farm income has strengthened sharply. Around 70% of all participating bankers reported that farm income was higher than a year ago.
 

 
Average interest rates on farm loans are at historic lows. The average fixed rate on all types of agricultural loans was at least 40 basis points less than a year ago and at least 170 basis points less than the 20-year average across all Districts in the first quarter. 

The combination of strength in the farm economy and low interest rates are supporting farm real estate values in all regions during the first quarter. The value of non-irrigated cropland increased by 7% on average across all Districts. Beyond the Mountain States, which are flat with last year, gains in farm real estate values range from 4% to 23%. 

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