U.S. farm loans by private banks jump in late 2012
Farmland values stayed strong during the third quarter of 2012 despite the drought as demand for farm real estate remained hot amid record high grain prices and overseas food demand from China and other industrializing nations. Farm land in the Midwest Corn Belt and central Plains states continued to notch record highs.
Despite soaring land prices, commercial bankers reported an upward spike in farm real estate loans heading into the fourth quarter as farmers worried about potential wild cards in tax policy in Washington. Sellers became more willing and buyers snapped up land.
"Elevated farmland prices and potential changes in tax policies motivated more land owners to sell before the end of the year," the Fed survey said. "As a result, most agricultural bankers expected gains in farmland values to moderate during the next year and level off at record high levels," the Fed added.
FARM BANKS BALANCE SHEETS STRONG
Agricultural bank performance strengthened in the third quarter of 2012. The rate of return on assets at these banks was 0.9 percent at the end of the third quarter, versus 0.5 percent at other small banks. Despite higher loan volumes, an increase in deposits kept the average loan-to-deposit ratio at the banks near historic lows, the Fed said.
"With ample funds for farm loans, strengthening loan demand fueled intense competition for agricultural lending activity among financial institutions. Farm interest rates fell to new lows, with some banks easing collateral requirements," the survey said.
Outstanding farm debt at commercial banks rose 4 percent above year-ago levels in the third quarter, driven by non-real estate loan originations. The volume of non-real estate farm loans rose more than 5 percent, and farm real estate loan volumes rose more than 3 percent.
Loan delinquency rates held relatively steady while farm interest rates fell to new lows, ranging from about 5.5 to 6 percent, with some banks easing collateral requirements.
"Interest rates were the lowest at large banks that offered more loans with floating interest rates. Loan-to-deposit ratios firmed with higher loan volumes, and the average return on assets at agricultural banks reached a five-year high during the third quarter," the Fed said.
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