In the third quarter, farm lending activity at commercial banks showed a decline, with average loan sizes decreasing. The National Survey of Terms of Lending to Farmers reported that the volume of new non-real estate farm loans fell for the second consecutive quarter compared to the previous year. This downturn was primarily driven by a significant drop in the average size of operating loans, particularly at small and mid-sized lenders. During early August, average interest rates on farm loans remained largely stable.

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While the outlook for the agricultural economy is uncertain, recent increases in crop prices have eased lending activity. The rise in prices for most major crops has helped to offset recent spikes in diesel prices, presenting potential profit opportunities and alleviating farm liquidity issues. Additional support from the Farmer Bridge Assistance Program and forthcoming crop insurance payments, along with strength in the cattle sector, have contributed to maintaining moderate financial stress within the agricultural sector.

According to the third quarter survey, non-real estate lending was subdued, with volumes down about 25% from a year ago. This decline was notably influenced by a sharp reduction in operating loans, alongside a decrease in livestock lending.

The smaller loan sizes, particularly at small and mid-sized banks, have contributed to the lower lending volumes. The average size of new operating loans at banks with portfolios under $100 million fell to approximately $30,000, down from over $100,000 in the same period over the last two years. In contrast, while larger lenders experienced a decline as well, the average size of such loans decreased to $115,000 from $150,000 a year earlier.

Throughout the survey period, interest rates on non-real estate farm loans were stable. Prior to recent increases in benchmark interest rates, average rates on loans were comparable to those of the previous quarter across all lender sizes. Compared to the previous year, rates decreased slightly more at banks holding the largest farm loan portfolios.