Farm Credit Systems Issues Current Ag Economic And Outlook Report

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Source: Farm Credit Administration

The Farm Credit Administration board received a quarterly report (PDF) on economic issues affecting agriculture, together with an update on the financial condition and performance of the Farm Credit System (System) as of March 31, 2023.

According to the report, inflation remains elevated in certain sectors of the economy despite interest rate hikes by the Federal Reserve and supply chain improvements. Rising wages have helped sustain inflation as continued job growth outpaces a rebound in labor force participation.

Higher interest rates have made borrowing more costly for homebuyers and consumers in general. The latest data show that, at least for now, consumers are still spending and servicing debts despite these challenges.

For agriculture, drought has declined substantially across the western half of the country, and good spring weather conditions sped up planting progress for many crops. For several states in the Great Plains and Southwest, drought conditions will need to continue to be monitored. With strong prospects for large crops and the building of grain stocks in 2023, prices have weakened. While many input costs also have fallen, crop producers are likely facing tighter margins this year.

Cattle producers are benefiting from improved pasture conditions and high prices following cattle herd reduction last year. For hog producers, weaker prices and elevated feed costs have led to negative returns since last fall.

The System reported solid financial results for the first quarter. Because of rising interest rates and seasonal lending fluctuations, System growth was slower in the first quarter of 2023 than it was for the same quarter the previous three years. The loan portfolio continued to perform well, but nonperforming assets increased. Despite the increase, the overall level of nonperforming assets remained low, at 0.53% of loans outstanding and other property owned.
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First-quarter earnings were strong but marginally below the same period a year ago. Capital and liquidity levels also remained strong. Overall, the System is financially sound, and institutions are well-positioned to meet borrower funding and liquidity needs.

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