Farm sentiment leaned pessimistic in the region as spring planting got underway

“Caution has turned to concern among the farm community due to the dry conditions and lower commodity prices,” commented a South Dakota banker at the outset of the 2025 growing season.

According to agricultural lenders responding to the Minneapolis Fed’s first-quarter Ag Credit Survey conducted in April, farm incomes and spending decreased over the first three months of the year. Interest rates on farm loans fell and demand for loans increased. Renewals and extensions also increased on balance, while rates of loan repayment declined. Farmland values continued to increase on average from a year earlier across the district, but cash rents fell slightly. The outlook for the growing season was pessimistic, and respondents expected further declines in farm incomes and spending.

Farm income and spending

District agricultural lenders overwhelmingly agreed that farm incomes fell, as 80 percent of respondents indicated that incomes decreased in the first three months of 2025 compared with the same period a year earlier. While farm incomes were weak overall, the share of respondents reporting increased or stable incomes was greater than the previous two quarters (see chart). The mild improvement may be due to better prices in animal products. “The cattle market is making these ag guys work financially,” a Montana banker commented.

Investment in equipment and buildings by farming operations also fell, as 70 percent of respondents reported decreased capital spending, compared with 11 percent who reported an increase. Household spending by farmers increased on balance, though 59 percent of respondents reported no change.

Loan demand and credit conditions

Bankers reported that credit demand grew, which was expected given constrained cash flow. Nearly two-thirds of respondents indicated increased loan demand in the first quarter relative to the first quarter of 2024, while only 7 percent noted decreased loan demand. The uptick in loan demand may also be due to some interest rate relief for farm borrowers. Average interest rates decreased slightly for all fixed and variable loan categories in the first quarter.

Along with demand for loans, one-third of respondents said renewals or extensions of existing loans also increased. But tighter incomes were holding back activity, according to a South Dakota banker who noted that their renewal season “has certainly been more challenging this year compared to the last 2-3 years.” The rate of loan repayment on farm loans decreased according to 52 percent of lenders. Meanwhile, 22 percent of banks responding to the survey had increased the amount of collateral required on farm loans relative to a year ago.

Land values and cash rents

Land values continued to grow through the beginning of 2025. Ninth District nonirrigated cropland values increased by more than 4 percent on average from the first quarter of 2024. Irrigated cropland values rose by nearly 7 percent from a year ago, while ranch- and pastureland values climbed 8 percent. Changes in land values and rents were generally consistent across district states. “Real estate values have remained strong in our area primarily due to investor interest,” noted a Minnesota lender.

By contrast, farmland cash rents declined. The district average cash rent for nonirrigated land fell by more than 1 percent from a year ago. Rents for irrigated land decreased 5 percent, while ranchland rents were nearly unchanged.

Outlook

Heading into the growing season, the outlook was generally negative. Across the district, 70 percent of respondents predicted that farm income will decrease in the second quarter from the same period a year earlier, compared with only 7 percent who forecast increases. The outlook for capital spending was also down sharply, as 67 expected declines. The outlook for household spending was flat.

Respondents also expected a further uptick in borrowing in the upcoming quarter. Two-thirds of lenders expected loan demand to increase, and renewals and extensions to increase on balance. The outlook for loan repayment was starkly negative, as 65 percent of respondents expected repayment rates to decrease. Nearly a quarter of bankers expected to increase collateral requirements for borrowers.

Some lenders were concerned about the longer-term viability of farm operations, especially those that weren’t diversified. “The farmers with crops-only are suffering this year,” commented a North Dakota banker. “If prolonged into 2026 we could see some fail.”