Higher input costs pressure district farmers

Farmers were already in a difficult situation heading into 2026 due to low crop prices; then came the war in the Persian Gulf and a surge in input costs. “Small grain-only operators have been stressed,” said a North Dakota lender, “and the price of fertilizer and fuel will stress them even more.”

Farm incomes and spending decreased over the first three months of this year, according to agricultural lenders responding to the Federal Reserve Bank of Minneapolis’ Ag Credit Survey conducted in April and covering first-quarter activity. Interest rates on most categories of farm loans increased slightly, while demand for credit increased. Loan renewals and extensions also increased on balance, while rates of loan repayment declined. Farmland values were roughly flat on average from a year earlier across the Federal Reserve’s Ninth District, and cash rents fell slightly. The outlook for the beginning of this year’s growing season was pessimistic, as respondents expected further declines in farm incomes and spending.

Farm income and spending

More than 75 percent of district agricultural lenders indicated that incomes decreased in the first three months of 2026 compared with the same period a year earlier. Despite strong harvests in much of the district and relatively stable or somewhat improving crop prices at the end of 2025, incomes fell again in the recent quarter (see chart). “Even with record 2025 yields, grain farming is difficult,” commented a South Dakota lender.

Investment in equipment and buildings by farming operations also fell, as 65 percent of respondents reported decreased capital spending, compared with 4 percent who reported an increase. Household spending by farmers was flat on balance, though 65 percent of respondents reported no change.

Loan demand and credit conditions

Given constrained cashflow, bankers also reported that credit needs grew. Demand for loans increased in the first quarter from a year earlier according to 46 percent of respondents, compared with 13 percent who noted decreased loan demand. The uptick in loan demand came despite a slight increase in average interest rates for most loan categories since the fourth quarter of 2025.

Along with demand for loans, almost half of respondents said renewals or extensions of existing loans increased. Financial difficulties have affected farmers’ ability to repay debt, and almost half of lenders reported a decrease in repayment rates. Meanwhile, 24 percent of banks said they increased the amount of collateral required on farm loans.

Land values and cash rents

Growth in land values appears to have moderated, though results were mixed across geographies and land types. Average Ninth District nonirrigated cropland values decreased by 0.7 percent on average from the first quarter of 2025. Irrigated cropland values continued to climb, increasing 1.4 percent on average from a year earlier, while ranch- and pastureland values climbed more than 3 percent, likely due to continued profitability in cattle. Changes in land values were mixed across district states. Lenders in Minnesota and North Dakota reported that nonirrigated cropland prices fell, while lenders in other states reported rising prices.

Farmland cash rents declined more uniformly, in contrast with land values. The district average cash rent for nonirrigated land fell by more than 2 percent from a year ago. Rents for irrigated land decreased 3 percent, while ranchland rents fell by 4.6 percent.

Outlook

Some bright spots in agriculture remained. A Wisconsin lender noted “record dairy exports,” which, along with changes in rules allowing year-round use of E15 ethanol blends, “makes prospects better for 2026.”

However, ag bankers’ outlooks heading into the growing season were generally negative. Across the district, half of respondents predicted that farm income will decrease in the second quarter from the same period a year earlier. While this share does represent some improvement from the first quarter, only 7 percent forecast increased incomes. The outlook for capital spending was also down sharply, with 61 percent expecting declines. The outlook for household spending was slightly negative, though a majority of lenders expected no change.

More than half of respondents expected a further uptick in loan demand in the upcoming quarter. Lenders also expected renewals and extensions to increase but loan repayment rates to decrease further.

More than a third of respondents expected to increase collateral requirements for borrowers. “The uncertainty is hard to manage,” said a contact in South Dakota. “As a lender we will be more conservative.”