Credit conditions in the seven-state Tenth District Federal Reserve District continued to weaken, although most bankers reported few significant problems with loan repayments, according to the Federal Reserve Bank of Kansas City’s quarterly Survey of Agricultural Credit Conditions. Bankers said the weakening ag economy has boosted loan demand, lowered cropland values and generally slowed Main Street business activity in the district’s agricultural regions.
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) second-quarter 2015 ag bankers survey shows:
District-wide land value changes compared to previous year
• Nonirrigated cropland: -2.8%
• Irrigated cropland: -3.6%
• Ranchland: +8.8%
Cropland values continued to soften, with largest declines in Nebraska and Missouri, according to Nathan Kauffman, assistant vice president and Omaha Branch Executive, and Cortney Cowley, economist. From the first quarter to the second, nonirrigated cropland values declined more than 4%. Irrigated cropland values remained steady on a quarter-over-quarter basis, but were 3.6% lower than a year before. In contrast, ranchland values posted modest gains due to continued profitability in the cow-calf sector. Although bankers expected nonirrigated and irrigated cropland values to decline further, they also expected ranchland values to moderate in the coming months. With the recent downturn in oil prices, land-lease revenue from mineral rights was identified as less important than two years ago.
District-wide average interest rates, compared to the previous quarter
Fixed rate loans
• Operating loans: 5.65%, up 0.04%
• Intermediate-term loans: 5.46%, down 0.02%
• Long-term farm real estate: 5.29%, down 0.05%
Loan demand continued to grow in the second quarter, and credit conditions weakened slightly. Loan repayment rates continued to decline, and loan renewals, referrals and extensions increased modestly from the previous year. In addition, bankers reported that few operating loan applications were denied.
More than half of survey respondents reported lower farm income in the second quarter compared to last year, marking the ninth consecutive quarterly decline.
Several survey respondents mentioned the challenges of wet weather conditions and lower crop prices in the midst of steady input costs. Although crop prices generally have remained depressed relative to recent years, feeder cattle prices have remained historically high. High prices for feeder cattle, combined with increases in cow-calf returns and improved forage and pasture conditions, have encouraged cow-calf producers to rebuild their herds. Some bankers commented that cow-calf producers had continued to maintain solid profit margins, supporting farm income in their areas. For feedlot operators, however, the break-even cost for cattle surpassed cattle prices at the beginning of 2015, and profit margins have been negative since January.
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