Agricultural credit conditions in the Federal Reserve’s Tenth District moderated in the second quarter, and farmland values continued to increase, according to Federal Reserve Economists Cortney Cowley and Ty Kreitman in Bank release.
The Federal Reserve’s Tenth District includes Wyoming, Colorado, northern New Mexico, Oklahoma, Kansas, Nebraska and western Missouri.
Following multiple years of improvement, farm income softened, and borrower liquidity retracted somewhat alongside continued cost pressures and lower prices for most agricultural commodities compared with a year ago, Cowley and Kreitman said.
COSTS INCREASE
Although cost increases have been more modest this year than last, many agricultural lenders expected loan demand to increase and repayment rates to decline in coming months, they said. Despite sharp increases in interest rates and a notable slowdown in cash rents, farmland values still grew at a strong pace.
Despite some moderation, the Tenth District’s farm economy was steady in the second quarter, the report said. Drought early in the quarter followed by heavy rains later contributed to difficulty with winter wheat harvest and spring planting.
Some agricultural bankers commented that decreased grain prices, weather volatility and stable production expenses could reduce borrower liquidity that had been very strong during renewal season, the economists said. Higher interest rates also increased borrowing costs for farmers, but loan demand remained stable, and bank liquidity remained sound despite a slight pullback in deposit balances.
CREDIT CONDITIONS
Farm incomes in the Tenth District moderated alongside more tempered conditions in the agricultural economy, the economists said. The changes in farm income were flat in the second quarter following two years of considerable strength.
The share of lenders reporting lower farm incomes than a year ago rose for the fourth straight quarter, and more than a third of respondents anticipated weaker conditions than last year in the next three months.
Income growth flattened alongside elevated production expenses, but cost pressures showed signs of easing, they said. Well over half of respondents reported production expenses for all types of producers continued to increase, but the degree of increase was more modest than last year.
EXPENSES DECLINE
Costs for crop farmers declined in the lending areas of 20% of banks, while reductions in costs for livestock producers were more limited, the report said.
Expense pressures and a moderation in commodity prices reduced farm liquidity, the economists said. Farm borrower liquidity declined at a moderate pace in the second quarter for the first time since 2020.
Nearly half of respondents reported producer cash reserves were less than the same time a year ago, and a similar rate of deterioration was expected in the next quarter, the Bank said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $181.39 per cwt to $191.12, compared with last week’s range of $179.34 to $190.97 per cwt. FOB dressed steers, and heifers went for $283.74 per cwt to $292.49, compared with $282.49 to $295.81
The USDA choice cutout Wednesday was up $1.73 per cwt at $308.99 while select was up $1.74 at $284.77. The choice/select spread narrowed to $24.22 from $24.23 with 92 loads of fabricated product and 26 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.90 to $2.10 a bushel over the Sep corn contract, which settled at $4.69 1/2 a bushel, up $0.05 1/2.
No contracts were tendered for delivery against the Aug cattle contract Wednesday.
The CME Feeder Cattle Index for the seven days ended Tuesday was $244.94 per cwt, up $0.30. This compares with Wednesday’s Aug contract settlement of $245.37 per cwt, down $0.50.