Interest rates on agricultural loans issued by commercial banks for some types of loans increased slightly. However, the Kansas City Federal Reserve says rates have remained historically low in the first half of this year.
The average rate on non-real estate loans was about 30 basis points above the all-time low reached at the end of 2020. Growth has been largely consistent across all types of loans. In contrast, average rates on agricultural property loans continued to decline and hit another historic low. Rates also remain relatively low at the largest commercial banks, and these lenders offered significant discounts for loans with the lowest risk, while smaller lenders continued to provide similar conditions regardless of risk.
The Fed’s report said that despite a modest increase in operating loan rates, historically low interest rates and subdued demand for agricultural lending indicate that interest costs remained low compared to previous years. Sector profitability also continued to be supported by high prices for most major commodities. A modest reduction in the cost of financing farm real estate can also provide ongoing support to the value of farmland.