Credit Conditions Steady

Several key farm credit indicators from the Tenth District Federal Reserve Bank in Kansas City (whose region includes Nebraska) reflect the solid underlying income conditions in agriculture. Survey responses from commercial bankers in the District show loan repayment rates (purple line in Figure 2) through three quarters of last year were improved but at a slower pace compared with 2021. A value above 100 means a greater number of bankers reported improved repayment rates compared to 2021. Not surprisingly, farm debt is larger compared to 2021 due to higher land values and rising expenses. The Tenth District reports farm real estate loans held by commercial banks in the third quarter of 2022 were 7 percent more compared to the third quarter of 2021. Production loans were also higher, 2 percent above last year. The Tenth District also reports renewals and extensions of loans to farmers rose moderately during the first three quarters of 2022 after more than a year of declines (blue line in Figure 2).

Figure 2. Selected Farm Credit Conditions

Source: Strong Farm Economy, but Interest Expenses and Drought Intensify Pressures, Nathan Kaufman and Ty Kreitman, kcFED Ag Credit Survey, Federal Reserve Bank of Kansas City, November 10, 2022.

Problem loans were also down in the third quarter relative to 2021 (Figure 3). The watch list are loans which qualify to receive credit but are being closely monitored. The classified list are loans with a defined weakness such as inadequate debt service or insolvent collateral position. Nebraska commercial bankers reported that about 10 percent of their farm loan volumes were on the watch list, down from 2021, but still the highest share in the Tenth District. Nebraska bankers also reported roughly 3 percent of their loan volumes were on the classified list, down slightly from the year prior. In comparison, roughly 6 percent of farm loan volumes in the Tenth District were on the watch list and 3 percent were on the classified list.

Figure 3. Problem Loans, Quarter 3

Source: Strong Farm Economy, but Interest Expenses and Drought Intensify Pressures, Nathan Kaufman and Ty Kreitman,, kcFED Ag Credit Survey, Federal Reserve Bank of Kansas City, November 10, 2022.