Q2 Ag Lending Softer: Federal Reserve Bank

Agricultural lending at commercial banks appeared to soften further in the second quarter amid the ongoing pandemic, the Federal Reserve Bank of Kansas City said in a release.

Financing secured through recent government lending programs likely supported the borrowing demands for some producers, the bank said.   A weak outlook for the agricultural sector amid low commodity prices in the second quarter also may have weighed on lending activity.

Farm-loan delinquency rates trended higher during the quarter, and there have been some signs of further liquidity stress among farm borrowers, the study said.

Agricultural government payments appear likely to limit the severity of financial stress among farm borrowers in the coming months, the Federal Reserve Bank said, but uncertainty about longer-term prospects likely will remain elevated.




As agricultural financing activity slowed, the Federal Reserve’s survey showed that the volume of total non-real estate loans declined for the fourth straight quarter, dropping about 13% from a year earlier, the bank said.

Over the past year, lending activity declined at an average rate of more than 15%, the bank said.  This measure of farm lending excludes loans provided to producers through the Small Business Administration Paycheck Protection Program, which may have replaced traditional financing for some borrowers and supplemented existing operating lines for others.

The overall reduction in lending was driven by a decrease in loans for nearly all purposes, the bank said.  While operating loans accounted for the largest share of the total decline in volume, the decrease in feeder livestock loans, in percentage terms, was notably more than other types of loans.

Alongside sharp declines in cattle and hog prices during recent months, the size of feeder livestock loans declined more than 40% from a year ago, compared with a 10% decrease in operating loans, the release said.

The decline in non-real estate lending also was attributed to a drop in the total number and average size of loans, the bank’s survey showed.  The overall decrease in the number of loans largely was because of fewer operating loans being originated.




Interest rates on non-real estate loans decreased during the quarter alongside a decline in benchmark rates, the bank said.  The average rate charged on all types of non-real estate loans neared historical lows.

The rate charged on operating notes and loans for other livestock dropped at a slightly faster pace than other types, the bank said.  Overall, the average effective rate on non-real estate loans decreased by more than 150 basis points when including loans for unspecified purposes, which typically garner lower rates.

A portion of loans reported in early May were secured through the PPP, the bank said.  Banks reported PPP loans totaling about $90 million to nearly 1,000 individual borrowers in 39 states.

The volume of PPP loans in the survey represented fewer than 2% of the total approvals for the agricultural sector reported by the SBA as of June 30, the bank said.




Fed cattle sold last week at $94 to $100 per cwt on a live basis, mostly $95 to $98, steady to up $3 from the previous week.  Dressed-basis trading was reported at $157 to $160 per cwt, steady to up $2.

The USDA choice cutout Monday was up $1.27 per cwt at $201.74, while select was up $1.28 at $191.59.  The choice/select spread narrowed to $10.15 from $10.16 with 90 loads of fabricated product sold into the spot market.

The CME Feeder Cattle index for the seven days ended Friday was $136.31 per cwt, down $0.30.  This compares with Monday’s Aug contract settlement of $141.60, down $1.10.