Wednesday, August 20, 2008

Survey finds tightening credit conditions for farmers

Last week we reported how about 60 percent of domestic banks have tightened lending standards. The Federal Reserve Bank of Kansas City in its most recent survey of agricultural credit conditions for the second quarter points to a somewhat similar development. The Tenth District farm income index pulled back in the second quarter, so did capital spending. High input costs such as fertilizer, fuel and chemicals are outweighing record high commodity prices. The expectations for the next six month are even worse. To be fair a net percentage of bankers in the survey still expects farm income and spending to rise towards the end of the year. Not surprisingly rising input costs also boosted loan demand in the second quarter, at the same time available funds decreased. This is expected to be even more alarming in the coming quarters although a net percentage of bankers still expect funds availability to be higher. (see chart)
According to the survey the loan repayment rate has dropped sharply in the second quarter. Loan repayment rates have rebounded slightly. In the second quarter about 50% of bankers reported higher and 50% lower repayment rates. This is expected to become slightly negative in the coming quarters. On a
positive note interest rates for farm operations and real estate are sharply lower from 9 percent to about 7 percent and are almost at their lowest levels since 2000. The report also notes that collateral requirements rose slightly and the number of loans refused due to a shortage of funds held steady.
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Farm land values were flat in the second quarter but nonirrigated and irrigated farmland values are still up 18.3% and 21.6% from a year ago (see chart below). The booming energy industry contributed to rising farm land values in Oklahoma, Colorado, and Wyoming.

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Selected Comments from District Bankers:

“Outlook has changed so much in the last 90 days. While grain prices remain at record levels, operating costs, especially fuel, fertilizer, and repairs have taken away most of the profit. Late planting will affect yields. Outlook not nearly as optimistic!” –
Northwest Missouri
"Input costs continue to drive loan demand.” –
North Central Nebraska

265 banks responded to this second quarter survey in the Tenth Federal Reserve District, an area that includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico, and the western third of Missouri.

source: High Energy Prices Slow the Farm Boom

Second quarter Survey of Agricultural Credit Conditions - Federal Reserve Bank of Kansas City

read also: Bank lending surveys reveal further tightening in lending standards

Monday, August 11, 2008

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