Farm Finances Weakened Further During the Growing Season

By Joe Mahon

Weather this summer has been good for crop production in much of the Ninth District, but crop prices have not been friendly to farmers’ pocketbooks. “High operating cost and lower grain prices are the biggest concern,” commented a North Dakota farm lender.

Farm incomes decreased across the Ninth District, according to lenders responding to the second-quarter Ag Credit Survey by the Minneapolis Fed. Lenders also reported that spending on capital equipment fell, and farm household purchases edged lower on balance. With a weaker cash position, demand for loans jumped; loan repayments also dropped, and loan renewal and extension activity increased. Interest rates for agricultural loans decreased slightly but remained high. Cropland values were mixed, while cash rents fell from a year ago. The outlook for the third quarter of 2025 is pessimistic, with survey respondents expecting a further decrease in incomes.

Farm income and spending

Bankers broadly reported that farm incomes fell. District-wide, 81 percent of agricultural lenders surveyed said incomes decreased from April through June compared with the same period a year earlier, while only 2 percent reported increased incomes. The second quarter marked two years of weak farm incomes, after a short period during which they were very strong (see chart).

Capital expenditures also dropped: 69 percent of respondents reported decreased investment in equipment and buildings from a year ago, compared with 10 percent who reported increased spending. Consumer spending by farm households declined more moderately. Just under one-third of lenders reported decreases in spending, and 26 percent reported increases.

Loan demand and credit conditions

“Prices are below break even for most producers,” wrote a Minnesota banker, “A majority will have to refinance [loans].” Just over a third of banks reported that loan renewals or extension activity increased in the second quarter; the remainder said that renewals held steady. More than half of respondents indicated that loan demand increased from last year, compared with 10 percent who said it was lower.

Credit conditions weakened overall, as 43 percent of lenders indicated that the rate of repayment on agricultural loans decreased relative to a year ago, and the remainder reported that repayment rates held steady. While most lenders reported no change to collateral requirements on loans, 14 percent said collateral requirements increased. No respondents reported having refused a loan due to a shortage of funds.

Farm borrowers got a bit more relief from falling interest rates. Fixed and variable rates on operating, machinery, and real estate loans all decreased for the second quarter.