Agricultural credit conditions continued to decline amid a broader slowdown in the farm economy. Results from Federal Reserve System Agricultural Credit Surveys showed that farm income and loan repayment rates weakened further in the third quarter.

Persistently high production expenses and lower prices for key commodity crops have weighed on farm incomes and made it more difficult for farm borrowers to repay loans. Growth in farm real estate values continued to moderate, but average interest rates on farm loans decreased.

Farm income and credit conditions weakened slightly in the third quarter. Both income and farm loan repayment rates declined at a faster pace in all reporting districts compared to a year ago. Alongside sharp declines in crop prices, financial conditions fell at the fastest pace in the Minneapolis and St. Louis regions. Declines were more muted in Chicago, Dallas and Kansas City regions, which could be due to larger contributions from livestock production in those areas.

Farm loan interest rates declined slightly alongside recent reductions in benchmark rates. The Federal Open Market Committee lowered the target range for the federal funds rate by 50 basis points in mid-September and interest rates on farm loans across all districts declined by about 14 basis points, on average during the survey period in the second half of the month. In the Chicago region, interest rates fell by 40 basis points, the largest decline since the first quarter of 2020.

Farm real estate values remained resilient despite headwinds from lower crop prices and higher interest rates, but growth continued to slow. Although annual growth in nonirrigated cropland values in the Kansas City region grew at a slightly faster pace compared with the previous quarter, values in other regions grew at a slower pace. Most notably, valuations in the Chicago region were unchanged from the previous year for the first time since 2019.