Strong harvests were cold comfort for district farmers

The USDA recently estimated that corn production hit a new record for the United States in 2025 at 17 billion bushels. Soybean production, though down from the previous year, still came in very strong.

But the bountiful production doesn’t change the difficult financial picture for many farmers in the Ninth District. “We were blessed with good yields but still seeing cash flow shortages,” commented a Minnesota lender, who cited low crop prices and high input costs as the causes.

Farm incomes generally decreased across the Ninth District, according to lenders responding to the fourth quarter Ag Credit Survey by the Minneapolis Fed. Lenders also reported that purchases of capital inputs fell, though farm household spending continued to edge up. Demand for loans increased, while the rate of loan repayment dropped, and loan renewal and extension activity increased. Interest rates for agricultural loans fell notably. Land values just barely increased from a year earlier, while cash rents were mixed. The outlook for the first quarter of 2026 was pessimistic, and survey respondents expected a further decrease in incomes.

Farm income and spending

Bankers across the district generally agreed that farm incomes fell. District-wide, 64 percent of agricultural lenders surveyed said incomes decreased in the fourth quarter from a year earlier, compared with 14 percent who reported increased incomes. Though still weak, the income picture has been rebounding over the past year (see figure), perhaps due to strength in the cattle market. “Livestock producers in our area have been very profitable,” reported a Montana lender.

Capital expenditure also dropped; 56 percent of respondents reported decreased investment in equipment and buildings from a year ago, compared with 11 percent that reported increased spending. In contrast, spending by farm households increased slightly on balance, though more than half of respondents reported no change.

Loan demand and credit conditions

Tighter cash led to greater need for credit, as 43 percent of respondents indicated that loan demand increased from last year, compared with 26 percent who said it was lower. While a slight majority of bank contacts said there was no change to loan renewals or extensions, 42 percent reported that renewal activity increased.

Credit conditions weakened overall. The rate of repayment on agricultural loans decreased relative to a year ago according to 44 percent of lenders, and a similar proportion (42 percent) reported that repayment rates held steady. While most lenders reported no change to collateral requirements on loans, 22 percent said collateral requirements increased. However, no respondents reported having refused a loan due to a shortage of funds.

A South Dakota banker noted one bit of relief for farmers: “Lower interest expense should help offset some of the other costs.” Fixed and variable rates on operating and machinery loans decreased significantly at the end of 2025, while interest rates for real estate loan loans fell slightly.

Land values and cash rents

Farmland values in the district, which have been climbing over the past five years, continued to rise in the fourth quarter, but the pace of increase was mixed across the region and land types. Ninth District nonirrigated cropland values increased by 0.7 percent from the fourth quarter of 2024, while irrigated cropland values rose by 1.5 percent. Ranch- and pastureland values increased by a whopping 12 percent, perhaps because of relative strength in the cattle market.

Changes in land values and rents were mixed across the region. Nonirrigated cropland prices increased 3 percent in South Dakota and rose slightly in Minnesota, but were flat in North Dakota and fell a few points in Wisconsin and Montana.

In contrast to recent quarters of falling land rents, the district average cash rent for nonirrigated land increased by almost 1 percent from a year ago. Though irrigated land rents fell by almost 3 percent, cash rents for ranchland increased more than 4 percent.

Outlook

“With extremely low commodity prices,” a Montana banker commented, “we are looking at a very scary 2026/2027.” Lenders generally reported a pessimistic outlook for agriculture over the first three months of 2026, as 64 percent said they expect that farm incomes will decrease from a year earlier, compared with 6 percent who expect higher incomes.

The outlook for farm capital investment was also contractionary, though household spending was slightly positive. Despite decreased spending expectations, most lenders said they expect loan demand to increase. More than a third of respondents said they expect the rate of repayment to decrease further in the first three months of the year, but most of them (69 percent) don’t anticipate any change in loans referred to credit agencies.