Credit conditions in the seven-state Tenth District Federal Reserve District weakened with further declines in farm income, according to the Federal Reserve Bank of Kansas City’s quarterly Survey of Agricultural Credit Conditions.

A summary of the Federal Reserve Bank of Kansas City (covering Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri) first-quarter 2015 ag bankers survey shows:

 

District-wide land value changes compared to previous year

• Nonirrigated cropland: +0.9%

• Irrigated cropland: -2.1%

• Ranchland: +6.8%

 

District-wide average interest rates, compared to the previous quarter

Fixed rate loans

• Operating loans: 5.61%, down 0.09%

• Intermediate-term loans: 5.48%, down 0.04%

• Long-term farm real estate: 5.34%, up 0.01%

Amid further declines in farm income, bankers reported district cropland values edged down. Irrigated cropland values declined in the first quarter, falling slightly below year-ago levels for the first time in more than five years. The value of nonirrigated cropland also declined during the quarter, but was holding just above year-ago levels. Similar to previous surveys, Nebraska posted some of the largest price declines, while cropland values in Oklahoma and the Mountain States remained the most resilient.

Looking ahead, very few bankers expect price appreciation; a majority of bankers anticipates that cropland values will hold steady; and more than a quarter of survey respondents expect cropland values to decline further in the next three months.

District ranchland values generally held firm in the first quarter of 2015, and year-over-year gains remained strong. In contrast to the crop sector, where lower incomes were starting to place downward pressure on cropland values, bankers reported profits in the cattle sector were continuing to support high ranchland values. Looking ahead, bankers expect the trend to continue.

The continued decline in farm income boosted demand for new loans, as well as renewals and extensions on existing loans. Demand for non-real estate farm loans increased across all district states in the first quarter, and is expected to remain elevated over the next three months. If the trend continues, loan demand would be the highest since the survey began in 1980.

Loan repayment rates have declined significantly. Collateral requirements remained the same or increased slightly for most farm loans throughout the district.

Although profit margins in the livestock industry have remained stable, most bankers do not expect farm income or credit conditions to improve in the next three months.

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