More farmland is being purchased with debt-financing
The Chicago Fed commercial bankers reported a loan demand for both real estate and non-real estate loans to be 96% of average for the fourth quarter of 2012, up from 87% one year earlier. The fact that real estate loan interest rates were 4.70% and dropping provided the impetus for use of commercial loans for financing land purchases. Despite the lower interest, 20% of the banks indicated they were tightening credit standards for anyone seeking an agricultural loan. Ten percent of the lenders wanted larger amounts of collateral.
Land values are going up, farmers are buying more land than non-farm investors, but they are also financing many of the land purchases in addition to paying cash. This trend stretches from the Great Lakes to the Mississippi Delta, and includes the heart of the Cornbelt. The additional debt is being incurred while many farmers are enjoying higher income, but also during a time of future concerns about the weather and farm productivity.
Source: FarmGate blog