Agricultural credit conditions in the Federal Reserve Bank’s Tenth District softened during the third quarter, a Bank Report said.
The report was authored by Kansas City Federal Reserve Economists Nate Kauffman and Ty Kreitman, located in the Omaha, Neb., branch. The Federal Reserve’s Tenth District encompasses Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri.
A total of 137 banks responded to the quarterly survey of agricultural credit conditions in the district.
FARM INCOME, REPAYMENT RATES LOWER
Farm income and loan repayment rates were lower than a year ago for the second straight quarter, Kauffman and Kreitman said. The moderation was more pronounced in areas most affected by drought but more tempered in areas most concentrated in cattle production.
Conditions have weakened slightly following two years of significant income improvement that continued to support loan performance, the economists said. Despite softening farm finances and substantially higher interest rates, agricultural real estate values in the region remained firm.
The agricultural economy has softened in recent quarters alongside a moderation in commodity prices, the pair said. Together with elevated production costs, a drop in the price of many key products over the past year likely reduced farm income in 2023.
STRONG CATTLE PRICES HELPED
Strong cattle prices have boosted margins for many ranches and feedlots, but profit opportunities have been much narrower for crop producers, they said. Despite softening incomes and high interest costs, agricultural loan performance remained solid with ongoing support from strong finances that bolstered the sector over the past two years.
FARM FINANCES AND CREDIT CONDITIONS
Farm income and producer liquidity cooled in recent months alongside lower commodity prices, the Federal Reserve Bank said. Nearly half of respondents in the third quarter survey reported lower farm income and borrower liquidity than a year ago, the highest share since 2020. Farm financial conditions have softened from considerably strong levels as prices of key commodities have moderated.
Prospects for income were comparably worse in some states, depending on their industry concentration, the economists said. Farm income was higher than a year ago in states more dependent on cattle production such as Oklahoma and the Mountain States.
In contrast, conditions deteriorated at a moderate pace in Kansas and Nebraska which have many areas dependent on revenue from corn, soybeans and wheat, they said.
Drought was another key factor contributing to deterioration in farm finances, the report said. For banks indicating that drought was not affecting the financial conditions of their borrowers, farm income was higher than a year ago, but conditions weakened notably for areas significantly affected.
Similarly, farm borrower liquidity declined at a faster pace in areas significantly affected by drought.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $177.46 per cwt to $176.86, compared with last week’s range of $177.68 to $180.99 per cwt. FOB dressed steers, and heifers went for $279.09 per cwt to $280.21, compared with $279.82 to $284.01.
The USDA choice cutout Monday was down $0.78 per cwt at $297.25 while select was off $0.96 at $267.80. The choice/select spread widened to $29.45 from $29.27 with 95 loads of fabricated product and 11 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 $1.35 to $1.40 a bushel over the Dec corn contract, which settled at $4.55 1/2 a bushel, down $0.07 3/4.
The CME Feeder Cattle Index for the seven days ended Friday was $230.38 per cwt, up $4.40. This compares with Monday’s Nov contract settlement of $228.64, down $0.73.