Despite moderate increases in prices of key agricultural commodities, Tenth Federal Reserve District bankers reported in a Kansas City Federal Reserve survey that farm income and spending continued to decrease in the first quarter.
The decline makes 2018 the fifth straight year that bankers reported lower farm income than the year before, the survey said. Although household spending and capital spending also continued to decline, the pace of the decline in capital spending, which has historically followed farm income, was relatively slower.
Changes in farm income now seems to be more in line with changes in household spending, as farm households attempted to adjust to lower incomes by reducing expenses, the Federal Reserve said.
Reduced farm income also restricted cash flow and contributed to more farm loan denials than in recent years, the Federal Reserve said. In the first quarter, more than 8% of farm loan requests were denied because of customer cash flow shortages.
The largest share of denials occurred in Oklahoma, where wheat production makes up a larger share of farm revenue, the bank said. One banker said almost all first-quarter farm loan denials were because of cash flow shortages.
Despite a recent uptick in commodity prices, cash flow shortages have reinforced concerns about liquidity in agricultural lending, the Federal Reserve said. In the first quarter, crop prices rose to their highest levels since 2016.
However, USDA national data showed that farm working capital across the country was expected to decline 65% in 2018 from 2012.
Alongside reduced liquidity on farms, bankers continued to restructure debt, though at a slower pace than in previous quarters, the Kansas City Federal Reserve said. Compared with last year, only bankers in western Missouri reported a higher percentage of loans that were restructured to meet short-term liquidity needs.
Although restructuring was still utilized in other district states, it was on a lower percentage of loans than in previous quarters, the bank said. The slower pace of restructuring, alongside a slower pace of decline in farm income, could suggest that higher prices played a role in stabilizing the farm economy in the first quarter.
Similar to farm income, first-quarter credit conditions continued to stabilize but remained weak, the survey said. Repayment rates on non-real estate farm loans continued to decline but at a slightly slower pace than in previous quarters.
In addition, second-quarter farm loan repayment rates were expected to decline again, but the pace of decline was expected to remain unchanged.
In contrast, first-quarter loan demand growth ticked up slightly and was expected to increase substantially in the second quarter, while growth in loan renewals and extensions was expected to slow.
CATTLE, BEEF RECAP
No cattle sold last Wednesday on the Livestock Exchange Video Auction, compared with sales three weeks previous at $122.40 per cwt.
Cash cattle trading last week took place at mostly $110 per cwt on a live basis with a few in Iowa at $111, down $5 to $7 from the previous week. Dressed-basis trading took place at $177 per cwt, down $7 to $8.
However, many sellers declined those bids, and showlists are larger this week.
The USDA choice cutout Tuesday was up $0.13 per cwt at $227.56, while select was off $0.97 at $203.65. The choice/select spread widened to $23.91 from $22.81 with 87 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Monday, was $135.04 per cwt, up $0.58. This compares with Tuesday’s May settlement of $144.97, up $0.05, and the Sep settlement of $144.72, up $0.27.