Taking the financial temperature of the heart of the Cornbelt
While that financial ratio indicated some financial squeeze, 32 percent of the bankers told the Fed that farmers were repaying non-real estate loans at a better rate than they were a year ago. Only 4 percent noted a lower repayment rate. Additionally, the rate of loan renewals and extensions of loans decreased, compared to year-earlier data.
Interest rates continued to be at historically low levels reported Oppedahl. He said, “As of Oct. 1, 2012, the average interest rates on agricultural operating loans and real estate loans were 5.21 percent and 4.86 percent, respectively. Both values were new record lows for the District. Illinois had the lowest average interest rates for both kinds of loans, while Wisconsin had the highest.” There was a slight bump upward with 7 percent of the bankers indicating that borrowers needed more collateral to qualify for loans.
The drought in the Cornbelt states of Iowa, Illinois, and Indiana cut crop production, but because of crop insurance the financial strength of crop producers remains strong, and stronger than livestock producers, who may be seeking more loan assistance. Land values remain at a high level, with prices and demand both rising; however, the rate of price increases may be slowing. Interest rates remain at historically low levels and that will foster continued increases in land values, if buyers do finance some of their purchase.