Extreme weather and rising input costs cut Tenth District farm incomes in the second quarter, according to the Federal Reserve Bank of Kansas City's Survey of Agricultural Credit Conditions.
The report, authored by Jason Henderson, Omaha Branch executive, and Maria Akers, associate economist, wrote that more bankers expected farm incomes to slow further in coming months. The Kansas City branch services banks in Kansas, Missouri, Nebraska, Oklahoma and mountain states.
"In the southern Plains, farm income expectations wilted as drought cut District wheat production. In addition, poor grazing conditions prompted herd liquidations and increased cattle feeding costs. As a result, Oklahoma bankers reported the steepest drop in farm incomes during the second quarter. Several respondents noted increased reliance on crop insurance to support farm income levels," the two wrote.
In the central Plains, farm income expectations declined to a lesser degree. Farm profits were trimmed as crop farmers paid more for production inputs, such as seed and fertilizer, and livestock producers paid high feed costs. Yet, plentiful rainfall fostered pasture and crop development, reducing irrigation costs. Heavy snow melt and rain led to flooding along the Missouri and Platte Rivers, with the hardest hit areas in Nebraska, Missouri and Kansas.
Credit conditions varied across the Tenth District with fewer requests for loan renewals and extensions in Nebraska offsetting an increase in loan restructuring reported by Oklahoma bankers.
Despite weaker farm incomes, bankers expected farm loan portfolios to strengthen over the next few months, the report states. When asked about loan repayment issues, bankers responded that, on average, 90% of their loans had no significant repayment problems, roughly 7% had minor repayment issues that could be managed easily, 2% would require major restructuring, and less than 1% would likely result in a loss or forced sale of assets.
In addition, more than half of survey respondents did not have any nonperforming loans more than 90 days past due.
On average, loans to livestock operators accounted for more than one-third of delinquencies, loans to crop producers made up another third, and loans for specialty crops, real estate and other purposes accounted for the remaining third, the report states.
The Federal Reserve Bank of Chicago reported that in the Seventh District, agricultural credit conditions were stronger in the second quarter of 2011 relative to a year earlier, as illustrated by a decrease to 2% in the portion of agricultural loans perceived by respondents as having "major" or "severe" repayment problems.
The Seventh District represents the states of Illinois, Indiana, Iowa, Michigan and Wisconsin. In the District's major corn- and soybean-producing states, between 1% and 2% of farm loan volume was problematic, but Michigan and Wisconsin had close to 4% of loan volume with troubled status.
David B. Oppedahl, business economist for the Federal Reserve Bank of Chicago, wrote in the district's latest AgLetter, that "during the second quarter of 2011, strengthening agricultural credit conditions, along with weaker loan demand, created a very competitive environment for farm lending." He added banks faced competitive challenges in maintaining their agricultural loan portfolios, let alone expanding them.
According to respondents, farm loans by banks diminished in the first half of 2011.
Oppendahl said responding bankers expected non-real-estate agricultural loan volumes to decrease in the third quarter of 2011 compared with the same quarter of 2010. "Volumes for farm machinery and grain storage construction loans were forecasted to rise during the third quarter of 2011 from a year ago. For the July through September period of 2011, 21% of the respondents anticipated higher farm real estate loan volumes than in the same period a year earlier, while 13% anticipated lower volumes."