Farm Lending Rises With Production Costs

Farm Lending Rises With Production Costs

Kansas City Federal Reserve report looks at the 2012 drought and its impact on farm lending

An August survey of national commercial banks showed increasing demand for short-term farm operating loans in the third quarter, largely attributed to higher input costs, says Jason Henderson and Maria Akers of the Kansas City Federal Reserve Bank.

Henderson and Akers say livestock operation lending was up due to higher feed costs and herd liquidations, but crop farmers weren't safe either – costs to operate irrigation rigs and farm machinery investments also warranted new loans.

Despite poor weather for much of the U.S., soaring crop prices and crop insurance supported farm incomes, Henderson and Akers say.

Kansas City Federal Reserve report looks at the 2012 drought and its impact on farm lending

"Bankers in the Chicago, Kansas City, Minneapolis and St. Louis districts reported that rising crop prices offset high input costs, boosting farm incomes. Profits in the livestock sector, however, suffered under high feed costs. In addition, drought prompted further herd reductions, which weighed on feeder cattle prices in the Kansas City district," the report says.

Healthy land values were also reported in many areas. As the recent record farmland sale in northwest Iowa showed, Henderson and Akers say drought conditions have little impact on the value of farmland, and sales followed traditional seasonal trends. Strongest gains were reported in the central Plains and northern Plains.

In Nebraska and South Dakota, non-irrigated cropland values were up 30% from August 2011 levels, and in the eastern Corn Belt, farmland values were up 10 to 15%, report authors note.

The KC Fed's banker survey indicated "ample funds" to meet loan demand. Strong bank competition and low interest rates brought strong profits, Henderson and Akers add, and farm loan delinquency rates also declined.

Read the full KC Fed report by clicking here.

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