Farm Financial Outlook Improves: Federal Reserve

Better profit opportunities for crop and livestock producers, as well as additional government support, created more favorable conditions for Tenth District farm finances in the third quarter than earlier in the year, said the Kansas City Federal Reserve Bank, in a report.

Farm income and credit conditions remained weak, but the pace of deterioration slowed from the second quarter, and demand for farm loans was more subdued, the bank said.

Amid improvement to cash flows and repayment capacity, bankers were monitoring a smaller share of loans for problems.  Bankers continued to express concerns, however, about the potential for renewed pressure in coming months, depending on the path of agricultural commodity prices and government support programs.




A sharp decline in second-quarter farm income abated somewhat in the third quarter, the bank said.  Increases in prices for the region’s major commodities late in the quarter, along with direct government payments, supported farm incomes.

And, about 55% of agricultural bankers throughout the district reported lower incomes than a year ago, compared with 75% in the second quarter.  Recent developments also led to more optimistic expectations about changes in farm income through the fourth quarter.

The slower decline in income was consistent across the district, while prospects for farm borrower liquidity also improved from the previous quarter, the bank said.  The pace of decline in income and liquidity was slower than the previous quarter in all states.

The sharp deterioration in second-quarter farm finances subsided most notably in Kansas and Oklahoma, the bank said.  The financial outlook for producers was most optimistic in western Missouri, where 40% of respondents indicated they expected liquidity would be higher than the same time a year ago and 50% expected farm incomes to be higher.

Following years of steady growth, demand for farm loans appeared to soften, the Bank said.  About 25% of bankers reported that loan demand was lower than a year ago, the highest share since 2013.  The third quarter also was the first time more bankers reported a decline in loan demand than an increase since 2013.

Alongside flat loan demand, the availability of funding increased for the fourth straight quarter, the Bank said.  Funding increases were expected to continue, but loan demand was expected to rebound.




Alongside a better outlook for farm income in 2020, credit conditions deteriorated at a more gradual pace in the third quarter.  About 20% of respondents reported a decline in loan repayment rates, versus about 35% in the previous two quarters and 30% a year ago.

Repayment challenges were expected to ease in the next quarter and improve slightly among row crop farmers and cattle producers.




Fed cattle trading this week was at $110 per cwt in the Plains, up $2.75 to $4 from last week.  Dressed-basis trading was done at $172, up $5 to $12.

The USDA choice cutout Thursday was up $3.66 per cwt at $226.50, while select was off $0.22 at $208.24.  The choice/select spread widened to $18.26 from $14.38 with 64 loads of fabricated product and 26 loads of trimmings and grinds sold into the spot market.

The USDA reported Thursday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.10 to $1.15 per bushel over the Dec CBOT futures contract, which settled at $4.08 1/4 a bushel, down $0.09.

The CME Feeder Cattle Index for the seven days ended
Wednesday was $136.70 per cwt, up $0.73.  This compares with Thursday’s Nov contract settlement of $140.07 per cwt, down $0.52.