Results from the Richmond Fed's latest survey of Fifth District agricultural banks suggested somewhat weaker lending conditions during the first quarter of 2008. Bankers reported that demand for farm loans retreated further and noted that requests for loan renewals or extensions moved down from the previous quarter. Agricultural lenders indicated that loan repayment rates contracted, but at a somewhat slower pace than in the fourth quarter. Moreover, farm loan availability improved further, while collateral requirements tightened from fourth quarter levels. Reports also indicated that interest rates for agricultural loans again moved lower across the board. Turning to farmland values, first quarter land prices were little changed from the previous quarter but above year-ago levels.
Lenders attributed the latest reduction in loan demand to the combination of cooler-than-normal weather and wet conditions which delayed planting and development of many crops. They also noted that some crops required replanting. Additionally, lenders expressed concern about escalating production costs.
A contact in Virginia said that unusually wet and cold conditions had delayed planting of soybeans and created the need for some corn and cotton to be replanted. Similarly, a North Carolina banker told us that although the recent rains had reduced the effects of the 2007 drought, wet field conditions had delayed corn planting in some areas of the state. He also indicated that some farmers may alter crop plans to include more soybeans. Furthermore, analysts in North Carolina, Virginia and West Virginia reported that higher feed costs coupled with elevated fuel expenses continued to squeeze margins for farmers, particularly cattle and poultry producers.
Accordingly, the forward looking index of anticipated demand for operating loans over the next three months held steady at 6. In other categories, expected demand for farm machinery loans picked up twenty-eight points to 7 and the reading for feeder cattle loans moved up twenty-five points to end at −8. Additionally, dairy loans added twenty-three points to −8 and crop storage loans gained seventeen points to finish at −7.
Interest rates for agricultural loans moved lower across all categories during the first quarter. Compared to fourth quarter levels, rates for operating loans decreased 83 basis points and rates for feeder cattle loans declined 79 basis points. In other categories, interest rates for intermediate-term loans dropped 67 basis points and rates for long-term real estate loans declined 37 basis points.
In the first quarter, 69 percent of lenders reported that they had actively sought new farm loans, down from last quarter's reading of 79 percent. In addition, the funds availability index increased four points to 25.
Readings for the quality of agricultural credit sent mixed signals during the first quarter. The index for loan repayment rates remained in negative territory but contracted at a slower pace, gaining nineteen points to end at −13, while the reading for loan renewals trimmed ten points to end at 6. In contrast, the index of collateral requirements increased eight points to finish at 25.
The market value of good farmland averaged $3,567 per acre in the first quarter, 0.5 percent lower than the fourth quarter reading, but 10.3 percent above the mark from a year earlier. Looking forward, bankers anticipated slightly faster growth in farmland prices during the second quarter of 2008; the index of expected land values picked up eight points to 13.
Senior Economic Analyst