Operating Loans Increase in Early 2014


Farmers and ranchers increased borrowing during the first three months of 2014 to cover current operating expenses, according to a national survey of commercial banks by the Federal Reserve Bank of Kansas City.

The survey found that operating loan volumes exceeded last year’s levels by 28 percent most likely due to crop prices that are 40 percent lower than year ago levels. Additionally, while crop prices have lowered cash receipts and prices for fertilizer have also declined, input prices related to seed and fuel are expected to remain at high levels. For the livestock industry, tight supplies of cattle and hogs drove prices higher and resulted in increased volume of livestock loans. According to the Kansas City Fed, the larger operating loans contributed to loan portfolio growth, especially for small and midsize banks, which experienced a 28 percent increase in non-real estate lending compared to a 20 percent increase at large banks.

While overall volume for loans was up early in 2014, lending for farm machinery and equipment fell by almost one third compared to last year. The Kansas City Fed suggests that capital spending may have declined due to machinery and equipment upgrades farmers and ranchers have made in recent years when tax depreciation rules were more favorable and also due to a shift in financing from intermediate term equipment loans to short-term operating loans.

According to the survey, demand for farm operating loans increased sharply in major grain producing areas like the Corn Belt and northern Plains. While receipts were down according to banks in the Federal Reserve District of Dallas, strong cattle prices and revenue from oil and gas leases supported overall farm income. Bankers in the St. Louis district reported a weakened loan demand due to stronger farm income compared to the previous year when a severe drought affected much of the area.

Commercial banks participating in the survey also reported improved loan performance via lower loan delinquency rates at both large and small banks than rates at this time a year ago.

A full summary of the survey is available by Clicking Here

Source: Drovers Cattle Network

Posted by Northern Ag Network

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