Results from the Richmond Fed's latest survey of Fifth District agricultural banks suggested a pullback in agricultural lending during the fourth quarter of 2011. Bankers generally reported that farm loan demand declined following a steady lending environment during the previous six months. They also noted that loan repayment rates picked up, while the rate of requests for loan renewals or extensions steadied. Respondents also said that farm loans were generally more available, and that requests for loan renewals or extensions decreased somewhat from our last report. Reports indicated that interest rates for intermediate-term loans inched lower, while all other agricultural loans rose. Turning to farmland values, fourth-quarter land prices were slightly below the previous quarter and year-ago levels.
The demand for loans downshifted in the fourth quarter. Lenders attributed the weakness to continued volatility in commodity prices, below normal yields in some areas of the District, and instability in feed ingredients for poultry and livestock producers. Moreover, lenders mentioned that low housing starts continued to dampen lumber demand but anticipated that demand for nursery products would pick up in the spring.
Contacts in North Carolina and West Virginia reported that cattle prices were solid and are expected to remain so into 2012. A banker in North Carolina cited high winds from Hurricane Irene as the primary reason for reduced crop yields — particularly for corn and tobacco — and noted that cotton planted in the coastal plain areas was seriously batterered. In contrast, a banker in Virginia reported above-average yields for the 2011 corn crop, despite areas of noticeable, but minor damage due to Hurricane Irene. A contact in North Carolina indicated that unstable feed costs continued to impact the profitability of integrators and slowed expansion plans in parts of North Carolina and southern Virginia. Furthermore, a banker in North Carolina indicated that problems in the housing industry continued to depress lumber demand and that demand for nursery products had stalled, with sales expected to be low until Spring of 2012.
Looking ahead, lenders' expectations for farm loan volumes in the fourth quarter of 2011 were mixed. The reading for farm machinery loans moved up thirty-seven points to 17, and the expected demand for operating loans rose nine points to 16. In other categories, however, the expected demand for dairy loans fell further, losing thirteen points to −30, while the reading for crop storage loans added six points to −27.
Interest rates for agricultural loans rose for all categories but intermediate-term real estate loans during the fourth quarter. Compared to third quarter levels, rates for feeder cattle loans moved up 39 basis points and rates for operating loans picked up 17 basis points. In other categories, interest rates for long-term real estate loans gained seven basis points, while rates for intermediate-term real estate loans eased four basis points.
In the fourth quarter, 85 percent of lenders reported that they actively sought new farm loans — up from 75 percent in the previous quarter. Moreover, lenders reported that demand for farm loans were down and that the funds availability index increased twenty-two points to 22.
During the fourth quarter, the quality of agricultural credit demand was mixed. Loan repayment rates increased as the index moved up fifteen points to 7, while the loan renewals index steadied moving down thirty-three points to 0. In addition, the index for collateral requirements lost eight points to end the fourth quarter at 46.
The market value of good farmland averaged $3,221 per acre in the fourth quarter — 1.3 percent below both the third quarter and year earlier readings. Looking forward, bankers anticipate that farmland prices would grow faster during the first quarter of 2012; the index for expected land values gained forty points to 23.
Senior Economic Analyst