Farm Lending Back Up for First Quarter 2014

Farm Lending Back Up for First Quarter 2014

Kansas City Fed ag lending update finds farmers borrowing larger amounts to cover current operating expenses

Farmers were borrowing larger amounts in more loans during the first quarter 2014 to account for inputs at spring planting, according to data compiled by the Kansas City Federal Reserve Bank.

Economist Maria Akers and Omaha, Neb., Fed branch executive Nathan Kauffman found in their latest Ag Finance Databook that the trend for the beginning of 2014 has lent itself toward not only more farm loans overall, but more loans to cover the higher crop input costs and to purchase more expensive feeder livestock.

Farm capital spending, however, slowed again, lessening the need for intermediate-term farm machinery and equipment financing, Kauffman and Akers report.

Kansas City Fed ag lending update finds farmers borrowing larger amounts to cover current operating expenses

According to their data, the volume of farm machinery and equipment loans fell by almost a third compared with the previous year, marking the fifth straight quarter of decline.

"Capital spending may have declined because operators recently upgraded equipment in high income years when tax depreciation rules were more favorable. Additionally, the prospect of lower farm income in 2014 may have shifted financing from intermediate term equipment loans to short-term operating needs," the specialists write.

Delinquency and repayment
Continuing improvement noted over the past three years, ag banks are also reporting strong repayment rates, even as a drop in crop prices at harvest was realized.

In addition, the return on assets at agricultural banks stabilized at the 10-year average and exceeded returns at other small banks by more than one-third, the report found.

For the 100 largest commercial banks, delinquency rates on non-real estate farm loans dipped below 2% for the first time since 2008. Furthermore, the percentage of farm loans 30 to 90 days past due was smaller than last year, which suggests delinquency rates could fall further, Akers and Kauffman say.

Performance by bank size
Small and mid-size banks reported more loans in comparison to larger banks; non-real estate farm loans grew by nearly 30% from last year at the smaller banks while large banks reported 20% growth.

The majority of loans at large banks featured a floating interest rate, while customers of small and midsize banks locked in more fixed-rate loans compared with last year.

Farmland prices
After several years of advancing farmland prices, Akers and Kauffman say data shows farmland values are rising, albeit at a much slower pace – most bankers continue to expect farmland prices will stabilize, though others project declines.

In particular, bankers in Corn Belt states reported year-over-year increases in non-irrigated cropland values moderated from previous highs. There was even a slight pullback in cropland values in parts of Minnesota and Iowa, report authors note. Energy activity, however, continued to support farmland value gains in the Dakotas.

Farm Lending Back Up for First Quarter 2014

Read the Kansas City Federal Reserve's full April 2014 Databook report.

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