(NAFB.com) – Strong agricultural prices continue to support the farm economy, but the rapid rise in production expenses could pressure profit margins. That’s pushing the demand for farm financing higher.

Larger-sized operating loans are continuing to boost farm lending activity. The Kansas City Fed says the volume of non-real estate farm loans increased by more than 10 percent for the third-consecutive quarter. Operating loans accounted for nearly all the growth, driven by an almost 25 percent increase in the average loan size. Besides a continued growth in lending, interest rates rose sharply and pushed financing expenses to their highest level since 2019.

Prices of most major commodities remained elevated alongside favorable market conditions and supported a positive outlook for farm finances through the end of this year. Uncertain demand for farm products in the coming year has led to more volatility, while drought continues to impact large parts of U.S. farm country.