Iran War Squeezes Midwest Farm Credit as Loan Demand Hits 10-Quarter High

Demand Up, Funds Down

Midwestern farmers are borrowing more than they have in nearly three years. The Federal Reserve Bank of Chicago's May 2026 Ag Letter, based on a survey of 104 agricultural lenders in Iowa, Illinois, Indiana, Wisconsin, and Michigan, shows demand for farm loans has risen for 10 straight quarters.

Lenders, however, have less to offer. Available funds have fallen for 12 consecutive quarters. That mismatch is forcing tighter underwriting. Seventeen percent of farm borrowers carried over debt from 2025 into 2026, and loan renewals and extensions are at their highest level since the COVID-era disruptions of 2020.

War Costs Land on the Balance Sheet

The Iran conflict is compounding an already fragile situation. The closure of the Strait of Hormuz has disrupted global fertilizer shipments. About 20 percent of the fertilizer used by American farmers comes from a Qatari facility that cannot ship while the strait remains restricted.

Fertilizer prices have shot up by more than 70 percent in the last 90 days. Farm diesel has climbed 72 percent since late February, according to the Kentucky Farm Bureau's testimony to the Senate agriculture committee. Prices for urea, a major nitrogen fertilizer, rose 55 percent over the same period.

USDA Secretary Brooke Rollins acknowledged the strain this week. She stated that the farm economy is struggling at a time of significant price increases.

Profitability Erodes, Land Values Stall

The Chicago Fed survey paints a picture of deteriorating conditions across the five-state region. Cash rents dropped 3 percent overall in 2026, marking the second consecutive annual decline after years of increases from 2021 to 2024. Iowa reported the steepest decline at 4 percent year over year.

Farmland values grew 3 percent from a year earlier but dipped 1 percent from the fourth quarter of 2025. More than half of surveyed lenders, 56 percent, now consider farmland overvalued. Only 1 percent see it as undervalued.

Many farms are operating near breakeven. Some are pivoting away from nitrogen-intensive crops like corn and shifting to soybeans, which cost less to grow. The decision is less about where prices are headed and more about what it actually costs to get a crop in the ground.

Structural Shift, Not Cyclical Blip

Farm bankruptcies nearly doubled between 2024 and 2025. Advocates warn the stress is pushing more operators out of the profession entirely. The 2026 Farm Bill, passed by the House Agriculture Committee with bipartisan support in March, is designed to provide relief, but Congress has not passed a full update since 2023.

Lenders are tightening guidelines and demanding more collateral. The Fed survey forecasts a decline in farm real estate loan volume for the second quarter. The combination of higher input costs, constrained credit, and weak crop prices mirrors the margin squeeze farmers faced in the 1980s, though the causes are different.

The next read on farm credit comes with the Kansas City Fed's quarterly survey, due in early June. A sustained ceasefire in the Gulf would ease energy markets, but supply chains remain sensitive and inflation pressures have not fully worked through the system.