Growth in farm lending at commercial banks slowed in the third quarter of 2019, yet loan volumes in the farm sector remained elevated, said the Kansas City Federal Reserve Bank in a study.
Following nine straight quarters of year-over-year growth and a particularly notable increase a year ago, the volume of total non-real estate farm debt declined nearer to the historical third-quarter average, the bank said. The primary contributor to the slowdown from sharp increases a year ago was a decline in the average size of farm operating loans.
Despite a slowdown, weaknesses in the sector persisted, continuing to pressure farm cash flows and agricultural credit conditions, the bank said.
Credit quality also deteriorated slightly in recent years at agricultural banks, the bank said. In general, agricultural lenders reported the pace of credit-condition weakening has slowed.
However, adverse weather conditions and elevated levels of debt relative to income could continue to weigh on the outlook for agricultural lending conditions in 2019.
NON-REAL ESTATE LOAN VOLUME UP LAST YEAR, DOWN THIS YEAR
A significant increase in the volume of 2018’s third-quarter non-real estate loans was offset by a similar decline in the third quarter of 2019, the bank said.
However, on a rolling four-quarter basis, non-real estate lending was about 2% lower than a year ago, the bank said. Furthermore, the average volume of non-real estate loans over the past four quarters remained nearly 10% above the recent historical average.
A decrease in the volume of farm operating loans drove the slowdown in non-real estate lending relative to a year ago, the bank said. Following sharp increases in 2018, loans used to finance operating expenses declined in the 2019 third quarter, returning to the prior 20-year average.
Feeder livestock and farm machinery loans also were lower and made up the remaining share of the decline in non-real estate lending, while loans for other livestock increased, the bank said.
A decline in average loan size contributed to the drop in operating loan volumes, the bank said. The average size of operating loans continued to follow a long-term trend of increases, but the pace of the increase slowed.
Similar to total non-real estate debt, the average size of operating loans declined from a year ago, offsetting a large increase in the third quarter of 2018, the bank said. On a rolling four-quarter basis, the size of operating loans remained well above the trend level of growth.
Also contributing to a decrease in loan volume, the number of operating loans declined in the third quarter and kept pace with the long-term trend, the bank said.
The average interest rate on all loan categories except feeder livestock rose slightly in the third quarter, the bank said. However, farm-loan rates remained well below historical averages.
CATTLE, BEEF RECAP
Cash cattle trading was reported last week at $174 to $175 per cwt on a dressed basis, steady to up $1 from the previous week. Live-basis trading occurred at mostly $109 to $110 per cwt, with some up to $111 late, up $1 to down $1.
The USDA choice cutout Monday was up $2.46 per cwt at $227.90, while select was up $0.92 at $200.76. The choice/select spread widened to $27.14 from $25.60 with 58 loads of fabricated product sold into the spot market.
No cattle were tendered for delivery against the Oct live cattle futures contract Monday.
The CME Feeder Cattle index for the seven days ended Friday was $144.35 per cwt, down $0.41 from the previous day. This compares with Monday’s Oct contract settlement of $145.40, down $0.30, and the Nov settlement of $145.72, down $0.35.