Results from the Richmond Fed's latest survey of Fifth District agricultural banks indicated a more stable lending environment during the first quarter of 2012. Bankers generally reported that farm loan demand was unchanged following a pullback in lending during the previous quarter. They also noted that loan repayment rates steadied, while the rate of requests for loan renewals or extensions increased. Respondents also indicated that farm loans were generally more available and that collateral requirements eased somewhat since our last report. Reports indicated that interest rates for agricultural loans were lower across all categories. Turning to farmland values, first-quarter land prices were markedly above the previous quarter and somewhat above year-ago levels.
The demand for loans stabilized in the first quarter. Lenders attributed the steadier lending environment to higher commodity prices, increases in tobacco contracts as well as great contracts for canola. Moreover, lenders mentioned that weak housing starts had slowed demand for framing lumber, but that they had seen some improvement in demand for nursery products.
A banker in Virginia reported that higher commodity prices were really good for farmers, resulting in a profitable year for most producers in that state. A lender in North Carolina said that some farmers were receiving increases in tobacco contracts from major tobacco companies due to reductions in flue-cured tobacco yields in 2011. A banker in South Carolina reported that they had several farmers growing canola for the first time this year and that great contracts were being offered. Furthermore, a contact in North Carolina noted that the demand for framing lumber had stalled as weak housing starts continued, but that they had seen some improvement in sales of nursery products over year-ago levels.
Looking ahead, lenders' expectations for farm loan volumes in the second quarter of 2012 were mixed. The reading for farm machinery and operating loans each moved up 29 points and both ended at 22. The expected demand for feeder cattle loans rose nine points to 0. In other categories, expected dairy loans shed three points to −33. Crop storage loans, however, were virtually unchanged at −9.
Interest rates for agricultural loans declined in all categories during the first quarter. Compared to fourth quarter levels, rates for feeder cattle, operating and long-term real estate loans all moved down 49 basis points. Interest rates for intermediate-term real estate loans, however, eased only four basis points.
In the first quarter, 82 percent of lenders reported that they actively sought new farm loans — down a tad from 85 percent in the previous quarter. Moreover, lenders reported that demand for farm loans steadied, and that the funds availability index increased fifteen points to 36.
During the first quarter, the quality of agricultural credit demand was mixed. Loan repayment rates declined as the index moved down seven points to 0, while the loan renewals index increased, moving up eight points to 8. In addition, the index for collateral requirements eased three points to end the first quarter at 43.
The market value of good farmland averaged $3,710 per acre in the first quarter — 15.2 percent above the fourth quarter reading and 4.1 precent higher than the reading a year ago. Looking forward, bankers anticipate that farmland prices would grow slightly slower during the second quarter of 2012; the index for expected land values lost eight points to 15.
Senior Economic Analyst