Results from the Richmond Fed's latest survey of Fifth District agricultural banks indicate that credit lending conditions remained soft during the fourth quarter of 2009. Bankers reported that farm loan demand was little changed from third quarter levels and noted that the rate of loan repayments declined at a slightly quicker pace. In addition, lenders reported that requests for loan renewals or extensions grew at a slower pace. Moreover, agricultural lenders reported that farm loan availability held constant, while collateral requirements eased from third-quarter levels. Reports also indicated that interest rates for agricultural loans moved higher across all categories. Turning to farmland values, fourth-quarter land prices were above both the previous quarter and year-ago levels.
The demand for farm loans was virtually unchanged in the fourth quarter. Lenders attributed the continuing softness in loan demand to excessive year-end rainfall which hindered harvesting,field preparations and plantings. Additionally, lenders expressed concern about the ongoing volatility in commodity prices and input costs, which they expected to lower net farm income for 2009. Moreover, lenders continued to express concern about depressed product demand — particularly in the forestry and nursery sectors. On the other hand, bankers noted that many dairy, swine and cattle farms had positioned their industries for recovery.
A contact in South Carolina said that excessive year-end rains had made it difficult to harvest soybeans and that farmers had a hard time getting their wheat planted. Similarly, bankers in Virginia and West Virginia told us that unusually heavy rainfall had limited winter preparations. An analyst in North Carolina expected row crop growers to face continued volatility in commodity prices and input costs for the near term, and expected net income for most grain producers to be lower in 2009 than it has been for the past two years. Moreover, a contact in North Carolina reported that drastic reductions in housing starts had negatively impacted the forestry and nursery industries — with some loggers and nurseries going out of business. Additionally, a contact in Virginia mentioned that dairy prices had started to become profitable again, and an analyst in North Carolina indicated that feed costs for swine and cattle farmers had subsided substantially, which could result in break-even levels for 2010. Furthermore, bankers in South Carolina and Virginia noted that overall, it was a good crop year in 2009, which would lower operating loan demand in 2010.
Supporting these expectations, the forward looking index of anticipated demand for operating loans over the next three months moved down nineteen points to −25. In other categories, the expected demand for crop storage loans lost seventeen points to −36 and the reading for dairy loans declined fourteen points to −50. In contrast, anticipated demand for farm machinery loans advanced twenty points to −18 and the expectations for feeder cattle loans gained seven points to −43.
Interest rates for agricultural loans moved higher across all categories during the fourth quarter. Compared to third quarter levels, rates for long-term real estate loans moved up 9 basis points and rates for feeder cattle and operating loans each increased 6 basis points. In the intermediate-term loans category, interest rates edged up 2 basis points.
In the fourth quarter, 75 percent of lenders reported that they had actively sought new farm loans, which was unchanged from last quarter's reading. Moreover, the funds availability index held constant at 0.
During the fourth quarter, the quality of agricultural credit was mixed. Loan repayment rates contracted at a quicker pace, as the index lost twelve points to −25, while the loan renewals index retreated 25 points to end at 6. In addition, the index for collateral requirements eased six points to finish at 50.
The market value of good farmland averaged $3,456 per acre in the fourth quarter, 3.5 percent above the third quarter reading and 5.2 percent above the mark from a year earlier. Looking forward, however, bankers anticipated that farmland prices would decline at a slightly quicker pace during the first quarter of 2010; the index for expected land values moved down six points to −31.
Senior Economic Analyst