Alongside strong growth in farm loans, liquidity at commercial agricultural banks tightened and earnings increased during the third quarter of this year.
According to Reports of Condition and Income, the average loan-to-deposit ratio at agricultural banks increased to the highest level since 2019 and rose comparably more at lenders with the highest concentration of farm loans. Liquidity declined alongside consistently strong growth in non-real estate farm debt, which also supported an increase in average net interest margins and return on assets.
Demand for farm loans has grown steadily alongside softening in farm financial conditions and farm loan delinquency rates increased slightly from a year ago but remained relatively low.
The outlook for the U.S. farm economy remained subdued alongside weakness in the crop sector, but strength in the cattle sector has lifted conditions in some regions and recently announced government assistance will provide support to farm incomes. Disparities in the crop and cattle sectors have been evident in credit conditions, but despite profitability challenges for crop producers, aggregate farm financial stress has remained limited. Ad hoc government payments associated with the American Relief Act and resilient farm real estate values have eased some strain in the sector throughout 2025.
Looking ahead, market conditions in the crop sector are likely to keep profit opportunities narrow, but the recently announced Farmer Bridge Assistance Program will provide some relief to crop farmers in the coming months.
Growth in outstanding farm production loans at agricultural banks remained strong in the third quarter. Non-real estate debt among agricultural banks increased about 8% from a year ago and has grown at a pace above the 20-year average for more than two years. Growth in real estate debt at agricultural banks remained modest, while both types of farm debt were nearly unchanged among non-agricultural lenders.
Liquidity at agricultural banks tightened further alongside consistently strong loan growth. Growth in both farm and non-farm loans at agricultural banks has outpaced or matched deposit growth for three consecutive years. Average loan-to-deposit ratios have historically been higher at highly concentrated agricultural banks where farm loans account for more than 300% of capital, and increased notably to the highest level since 2019 for that cohort of lenders during the third quarter.
Notes: Agricultural Banks are defined as banks with total agricultural loans comprising at least 25% of total loans. This study focused on 931 agricultural banks from Q3 2025.
While liquidity tightened alongside strong loan growth, earnings performance at agricultural banks improved. Average net interest margins at agricultural banks also increased to the highest level since 2019 and supported an increase in average returns on assets. Interest margins also remained slightly higher at banks with the highest concentration of farm loans.
Farm loan delinquency rates increased alongside tighter farm financial conditions, but rose less for the most highly concentrated agricultural banks. The average delinquency rate on farm loans at banks with high farm loan concentration remained less than 1% and increased to only about 1.25% for all others. With modest increases in delinquencies, average loan loss reserve ratios at agricultural banks were relatively steady.
Ty Kreitman is an associate economist in the Regional Affairs Department at the Omaha Branch of the Federal Reserve Bank of Kansas City.