Growth in farm debt remained strong in first half of 2026 helping boost financial performance at agricultural banks

Growth in farm debt remained strong in the first half of 2026 and helped boost financial performance at agricultural banks. According to commercial bank Reports of Condition and Income, growth in non-real estate farm debt continued to be concentrated at agricultural banks through the second quarter of 2026 and growth in farm real estate debt was more consistent across all types of commercial lenders. Persistent strength in farm loan demand supported profitability and capital ratios at agricultural banks while liquidity for those lenders tightened gradually. Despite ongoing challenges in the crop sector, farm loan delinquency rates were unchanged from a year ago. Aggregate farm financial conditions have been resilient with support from government payments, strong cattle revenues and stable farm real estate values. Crop prices increased considerably in recent weeks, but the outlook for profitability remained relatively subdued as higher prices for key inputs also increased and prospects for crop yields in some areas have deteriorated. Recent trends in farm debt across agricultural and non-agricultural banks continued in the second quarter. Similar to last quarter, growth in outstanding non-real estate farm loans at agricultural banks was strong and balances at non-agricultural banks declined slightly. Real estate debt was higher across both categories of lenders and the pace of growth also increased. While farm real estate debt balances have risen, the pace of growth remained modest and continued to signal only gradual deterioration in aggregate farm financial conditions. As loan balances grew, farm loan delinquency rates were stable and relatively low. The share of farm debt past due 30 days or more was unchanged from the same time a year ago at both agricultural and non-agricultural banks. About half of all agricultural banks had minimal or zero past due farm loans and only a quarter had a farm loan delinquency rate above 1.4%. Strong loan growth and solid loan performance boosted earnings at agricultural banks as liquidity tightened slightly. With support from higher net interest margins, the return on average assets at agricultural banks increased notably from recent quarters and was the highest since the data was first recorded in 1984. The loan-to-deposit ratio increased slightly as loan balances grew and reached the highest level for any quarter since 2019. ___ Ty Kreitman is an associate economist in the Regional Affairs Department at the Omaha Branch of the Federal Reserve Bank of Kansas City.