Based on average interest rates for agricultural loans, the Kansas City Federal Reserve Bank says the outlook for the agricultural economy this year remains strong.
In a release, bank economists Nathan Kauffman and Ty Kreitman said, “Interest rates on agricultural loans made by commercial banks increased slightly for some types of lending but remained historically low through the first half of 2021.”
They also said, “With the exception of some persistent headwind for the cattle industry and producers impacted by drought, the outlook for the agricultural economy in 2021 remained strong through the second quarter.”
AG INTEREST RATES CONTINUE DECLINE
The economists said, “The average rate on non-real estate loans was about 30 basis points higher than the all-time low reached at the end of 2020, and the uptick was largely consistent across loan types. In contrast, the average rates on farm real estate loans continued to decline and marked another historic low.
“Rates also remained comparatively low at the largest commercial banks and those lenders offered a sizeable discount for the lowest risk loans, while smaller lenders continued to provide similar accommodation regardless of riskiness,” the pair said.
The Bank also said that second-quarter profitability in agriculture also was supported by strong prices for most products, and the slight decline in financing costs for farm real estate.
The economists also said the distribution of rates on operating and real estate loans was similar to five years ago but starkly different than 10 years ago in that about 15% of operating loans had rates less than 3% in the second quarter, compared with 12% of loans during the same periods of 2015 and 2% of loans in 2010.
The cost of financing continued to be lower on large loans, the Bank said. While rates reached all-time lows for all typed of loans, a spread of at least 100 basis points continues between loans less than $10,000 and loans above $100,000.
Similar to the aggregate average for non-real estate loans, the rates on all loan sizes have increased slightly from the low points in previous quarters, the economists said.
LARGER BANKS, LOWER RATES
The largest commercial banks also continued to book loans with lower rates than other agricultural banks, the economists said. The average rate on non-real estate loans at the largest banks was more than 150 basis points less than all others.
Average rates at small and midsized banks reached all-time lows in the first quarter of 2021 and increased slightly during the second quarter, while rates at the largest lenders continued to decrease, the Bank said.
CATTLE, BEEF RECAP
Fed cattle traded this week at $119 to $121 per cwt on a live basis, steady to down $4 from last week. Dressed-basis trade last week was at $196 to $201, steady to down $1.
The USDA choice cutout Wednesday was up $0.36 per cwt at $265.24, while select was up $0.19 at $248.77. The choice/select spread widened to $16.47 from $16.30 with 124 loads of fabricated product and 38 loads of trimmings and grinds sold into the spot market.
The USDA reported Wednesday that basis bids for corn from livestock feeding operations in the Southern Plains were up $0.76 to $0.79 a bushel at $1.86 to $1.91 a bushel over the Sep futures and for southwest Kansas were unchanged at $0.70 over Sep, which settled at $5.71 3/4 a bushel, unchanged.
The CME Feeder Cattle Index for the seven days ended Tuesday was $150.71 per cwt down $0.19. This compares with Wednesday’s Aug contract settlement of $156.77 per cwt, up $1.25.