Farm debt balances at commercial banks continued to rise in the third quarter. According to call report data, growth in agricultural production loans slowed from earlier in the year but remained strong. Growth in farm debt was broad, but the pace of increase was fastest among lenders with the highest agricultural loan concentrations.

Increases in farm and non-farm loan balances continued to outpace growth in deposits, and liquidity ratios at agricultural banks tightened further, particularly those most concentrated in farm lending. Despite higher debt balances and softening farm financial conditions, delinquency rates on agricultural loans remained low.

Growth in farm debt at commercial banks eased slightly but remained strong. Total farm debt outstanding grew 4% from a year ago, which was a slightly slower pace than the previous year and quarter. Farm real estate debt slowed to just below 2% annual growth, but the slowdown in total farm debt was primarily driven by slower growth in non-real estate farm debt. Debt for non-real estate purposes, such as operational expenses, livestock and farm equipment, grew more than 7%, which was slower than the previous quarter but still a faster pace than a year ago.

Increases in farm debt were broad, but most pronounced at banks highly concentrated in agricultural lending. Total dollar value growth in agricultural loans was the same for banks with the least and most agricultural loan concentrations. However, banks with more than 300% agricultural loans as a share of Tier 1 capital plus allowance for loan losses saw the fastest pace of growth in farm debt compared to the third quarter, likely because more highly concentrated agricultural banks tend to be smaller.

Although loan balances continued to grow, delinquency rates remained low. Delinquency rates on farm loans at banks more concentrated in agricultural lending remained stable and less than 1%. At banks with the lowest agricultural loan concentrations, delinquency rates increased by about 50 basis points but remained below previous peaks at just under 1.5%.

Liquidity at agricultural banks continued to moderate alongside strong loan growth. Although growth in deposits continued to increase, and growth in agricultural and non-agricultural loans softened, loan growth continued to outpace growth in deposits, leading to further increases in loan-to-deposit ratios. Liquidity declined at all banks but was the tightest at the most highly concentrated agricultural banks, which had a median loan-to-deposit ratio above 85.