Despite an average size increase, fewer new loans to farmers in the fourth quarter continued to drive a pullback in overall non-real estate agricultural lending activity, said Ty Kreitman and Cortney Cowley, economists at the Federal Reserve Bank of Kansas City in an analysis on the Bank’s website.
The results come from the latest National Survey of Terms to Lending to Farmers, the release said.
Stronger prices for agricultural products, along with continued support from government payments may have reduce d financing needs for some and could have contributed to the slower pace of lending, the economists said.
Moving forward, loan volumes may soften further if sharp increases in prices for key agricultural commodities like corn, soybeans and wheat continue to ease farmers’ financing needs, the bank said.
LOAN VOLUME DOWN 1%
The volume of total non-real estate farm loans declined about 1% from a year ago, but remained slightly above the 10-year average in the fourth quarter, the economists said. Farm lending declined at an average pace of 2% throughout 2020, following an average decline of nearly 5% in 2019 and an average increase of more than 12% in 2018.
The number of loans continued to trend downward, while the average size of farm loans grew for the second straight quarter, they said.
The number of new bookings with balances of less than $100,000 decreased by about 30% from a year ago and accounted for nearly 90% of the overall decline, the survey found. The number of notes greater than $100,000 also dropped by about 18% and, together with a record low number of loans, the average size of all new non-real estate loans reached a historic high.
Changes in the average size and number of loans generally were consistent across all types of loans, the economists said. For all lending purposes, the number of loans decreased and the average loan size increased.
While there were fewer loans for all purposes, operating loans continued to comprise the majority of non-real estate lending and accounted for over half of the overall decline, the release said.
INTEREST RATES REMAIN LOW
Interest rates on agricultural loans remained historically low in the fourth quarter, the economists said. After rising to a 10-year high in 2018 and 2019, rates on farm loans began to decline in the second quarter of 2020 alongside a decrease in benchmark rates.
Compared with the same time a year ago, interest rates charged on non-real estate farm loans declined by at least 110 basis points for all purposes, they said.
And, interest expenses for producers declined about 40%, about the same as a 3-cent increase in corn prices.
CATTLE, BEEF RECAP
Fed cattle trading was reported in the Plains this week at $108 to $111 per cwt on a live basis, down $1 to $2 from last week. Dressed-basis trading was seen at $173 to $174 per cwt, down $2 to $3.
The USDA choice cutout Thursday was up $2.37 per cwt at $213.37, while select was up $2.01 at $201.07. The choice/select spread widened to $12.30 from $11.94 with 102 loads of fabricated product and 34 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 $1.21 to $1.27 a bushel over the Mar CBOT futures contract, which settled at $5.34 1/4 a bushel, up $0.09 3/4.
The CME Feeder Cattle Index for the seven days ended Wednesday was $135.49 per cwt, down $0.66. This compares with Thursday’s Jan contract settlement of $132.60 per cwt, down $0.97.