Interest rates on agricultural loans made by commercial banks increased slightly for some types of lending. However, the Federal Reserve Bank of Kansas City says rates stayed historically low through the first half of this year. The average rate on non-real estate loans was about 30 basis points higher than the all-time low reached at the end of 2020.
The rise was largely consistent across all types of loans. In contrast, the average rates on farm real estate loans continued to decline and marked another historic low. Rates also remain comparatively low at the largest commercial banks, and those lenders offered a sizable discount for the lowest-risk loans, while the smaller lenders continued to provide similar accommodation regardless of the risk. The Fed’s report says that, despite the slight increase in rates for operating loans, the historically-low-interest rate environment and muted demand for agricultural lending suggest that interest expenses have remained low relative to recent years.
Profitability in the sector also continued to be supported by strong prices for most major commodities. The slight decline in financing costs for farm real estate may also provide ongoing support to farmland values.