Fifth District Survey of Agricultural Credit Conditions

2012

 

September 17, 2012

2nd Quarter 2012 - Farm Loan Demand Remained Stable; Farmland Prices Edged Lower

 

Overview

Results from the Richmond Fed's latest survey of Fifth District agricultural banks indicated a steady lending environment during the second quarter of 2012. Bankers generally reported that farm loan demand held firm after plateauing during the previous quarter. They also noted that requests for loan renewals or extensions declined, while the rate of loan repayment steadied. Respondents also said that farm loans were generally more available and that collateral requirements eased notably since our last report. Reports also indicated that interest rates for long-term real estate loans inched lower, while all other agricultural loans rose. Turning to farmland values, second-quarter land prices were slightly below the previous quarter, but were somewhat above year-ago levels.

Demand for Farm Loans

The demand for loans held steady in the second quarter. Bankers attributed the consistency of the lending environment to volatility in weather conditions, higher input costs, and predictions of good yields for a number of crops in some areas of the District.

A banker in Maryland reported that drought conditions could force some loan extensions, noting that higher input costs meant credit line increases. A lender in North Carolina said that extremely high temperatures coupled with dry conditions in late spring delayed crop development. He noted that recent storms resulted in some property and crop damage, but that rains accompanying the storms relieved moisture conditions for most of the state. He also indicated that the corn crop suffered the most in the region. In contrast, a banker in South Carolina reported that the crops looked good in that area due to ample rainfall over the last several weeks. He mentioned that the area had a good overall wheat crop, and that corn looked like it will produce excellent yields. A contact in Virginia said that high prices for feed ingredients had affected their livestock producers, while the price of livestock declined. Similary, a banker in North Carolina cited skyrocketing prices for feed ingredients due to the drought in the Midwest, and noted that profits for both swine and poultry will be squeezed, with negative margins predicted in the near future.

Looking ahead, lenders' expectations for farm loan volumes in the third quarter of 2012 were mixed. The reading for crop storage loans moved up eight points to 0, and the expected demand for operating loans was virtually unchanged at 20. In other categories, expected farm machinery gained eight points to 13, and dairy loans loans added 11 points to −22. Feeder cattle loans, however, declined 40 points to finish at −40.

Loan Demand

Interest Rates

Interest rates for agricultural loans rose for all categories except long-term real estate loans during the second quarter. Compared to first quarter levels, rates for feeder cattle loans moved up 26 basis points and rates for operating loans picked up 17 basis points. In other categories, interest rates for intermediate-term loans gained five basis points, while rates for long-term real estate loans eased seven basis points.

Availability of Credit

In the second quarter, 89 percent of lenders reported that they actively sought new farm loans — up from 82 percent in the previous quarter. Moreover, lenders reported that demand for farm loans steadied, and that the funds availability index increased 11 points to 47.

Credit Quality

During the second quarter, the quality of agricultural credit demand was mixed. Loan repayment rates held firm at 0, while the loan renewals index dropped moving down 22 points to −14. In addition, the index for collateral requirements eased 30 points to end the second quarter at 13.

Farmland Values

The market value of good farmland averaged $3,523 per acre in the second quarter — 5.0 percent below first quarter, but 6.3 percent higher than year earlier readings. Looking ahead, bankers anticipate that growth of farmland prices will slow during the third quarter of 2012; the index for expected land values lost 15 points to 0.

Average Farmland Value
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Richmond

Aileen Watson
Senior Economic Analyst
(804) 697-7995