Farm income and credit conditions in the Federal Reserve Bank’s tenth district deteriorated further in the second quarter, said a release from the Federal Reserve Bank of Kansas City.
The Federal Reserve Bank’s tenth district encompasses Colorado, Missouri, Kansas, Nebraska, New Mexico, Oklahoma and Wyoming.
Low commodity prices and concerns about the effects of the pandemic on demand for agricultural products weighed on farm income and expectations about repayment rates on farm loans, the Bank said. Most local bankers reported that direct government support programs were expected to provide relief for lower revenues, and credit programs could supplement the borrowing needs of some producers.
However, continued uncertainty, low commodity prices and emerging drought in the western portion of the district could put additional pressure on agricultural economic conditions moving forward.
FARM INCOME AND BORROWER FINANCES
Alongside disruptions related to COVID-19, farm income declined at a considerably faster pace in the second quarter, the Bank said. Weak market conditions for key agricultural commodities limited profit opportunities, and farm income in the district dropped at the fastest rate since 2016.
Looking to the next quarter, declines in income were expected to persist, the release said. The deterioration in income during the second quarter, and expectations about the coming months generally were consistent across all states.
Lower farm revenues also put pressure on liquidity among farm borrowers, the release said. A majority of bankers reported that borrower liquidity decreased in the second quarter, and additional declines were expected in coming months.
The decrease generally was consistent across all states, with a comparably higher share of banks in Nebraska reporting reduced short-term funds among borrowers, the Bank said. Even prior to the pandemic, the US Department of Agriculture had forecast additional declines in working capital for the US farm sector in 2020; and recent developments may put additional pressure on many producers.
GOVERNMENT AID TO HELP
While revenues and income weakened considerably throughout the district, government aid programs were expected to provide relief to farm finances, the Bank said. Nearly 95% of respondents throughout the region indicated that support from the Coronavirus Food Assistance Program likely would boost farm income and support credit conditions.
A majority of banks expected the effect of the direct payment assistance to be “moderate” and about 30% characterized the support as “significant.”
Respondents also expected the Small Business Administration’s Paycheck Protection Program would provide material support, the release said. About 90% of respondents indicated the program would support farm income and credit conditions.
Similar to the CFAP, most expected the effect of loan assistance to be “moderate” with about 20% describing the support as “significant,” the Bank said. The PPP, along with other lending programs such as Economic Injury Disaster Loans, likely will supplement the borrowing needs of some producers.
CATTLE, BEEF RECAP
Fed cattle trading was reported in the Plains this week at $103 to $105 per cwt on a live basis, up $2 to $4 from last week. Dressed-basis trading was done last week at $163 to $164 per cwt, up $3 to $4.
The USDA choice cutout Thursday was up $1.86 per cwt at $210.95, while select was up $1.42 at $197.41. The choice/select spread widened to $13.54 from $13.10 with 105 loads of fabricated product sold into the spot market.
Twelve heifer contracts and six steer contracts were tendered for delivery at zero against the Aug live cattle futures contract Thursday. Six more heifer contracts were tendered for delivery at 1.
The CME Feeder Cattle Index for the seven days ended Wednesday was not available. Thursday’s Aug contract settled at $144.95 per cwt, down $0.30.