Farm loan delinquency rates at commercial banks remained limited through mid-year, despite an increase in farm debt and signs of financial tightening at the time, said a Kansas City Federal Reserve Bank release.
The report, authored by Kansas City Federal Reserve Bank Economists Nate Kauffman and Ty Kreitman, also said quarterly bank reports said second-quarter outstanding non-real estate farm debt at commercial banks grew about 10% from a year ago.
The rise in farm debt was even more substantial at agricultural banks where debt balances rebounded to longer-term trends, Kauffman and Kreitman said. A moderation in the agricultural economy and lower farm-sector liquidity spurred the higher financial needs.
ECONOMY SOFTENS, LOAN NEEDS RISE
Growth in farm production loans stayed strong through mid-year as the agricultural economy continued to soften, the Bank report said. The outstanding balance of real estate and non-real estate operating loans at commercial banks increased about 2% and 10% from a year ago, respectively.
The rapid increase in non-real estate debt pushed balances nearer to, but still below the historical trend after adjusting for inflation, the economists said. Growth in real estate debt, however, remained subdued following a substantial retraction in 2021.
The increase in farm debt was notably more pronounced among agricultural banks, the report said. The outstanding balance of real estate and non-real estate operating loans at commercial agricultural banks increased roughly 6% and 15% from a year ago, respectively.
For those lenders, real estate and non-real estate debt balances were near the long-term trend, the Bank said.
OUTSTANDING FARM DEBT
Liquidity for agricultural lenders tightened alongside recent loan growth, the economists said. The loan-to-deposit ratio among farm lenders increased to the highest level since 2020.
Agricultural bank liquidity declined from record levels alongside strong loan growth and elevated competition for deposits that led to increased use of alternative sources of funding at community banks.
Capital levels at agricultural banks improved slightly alongside steady earnings, the Bank said. The tier 1 leverage capital ratios increased modestly from the previous quarter, remaining solid but below the 10-year average.
The net interest margin and return on assets at agricultural banks was mostly unchanged over the quarter as elevated funding costs kept margins tight, the Bank said.
Credit conditions tightened along with farm finances in recent months, but loan delinquency rates remained low, the report said. About 1% of real estate and non-real estate farm loans were past due at least 30 days in the second quarter, a slight increase from record low levels a year ago.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $187.00 per cwt to $188.38, compared with last week’s range of $185.99 to $188.49 per cwt. FOB dressed steers, and heifers went for $292.69 per cwt to $298.16, compared with $290.85 to $297.16.
The USDA choice cutout Tuesday was up $3.51 per cwt at $316.83 while select was up $2.99 at $292.09. The choice/select spread widened to $24.74 from $24.22 with 110 loads of fabricated product and 26 loads of trimmings and grinds sold into the spot market.
The USDA-listed weighted average wholesale price for fresh 90% lean beef was $349.56 per cwt, and 50% beef was $56.76.
The USDA said basis bids for corn from feeders in the Southern Plains were down $0.06 to $0.08 at $1.25 to $1.40 a bushel over the Dec corn contract, which settled at $4.01 1/4 a bushel, down $0.07.
Ten steer contracts were retendered Tuesday against the Oct live cattle contract at two and demanded at two. Ten more were tendered.
The CME Feeder Cattle Index for the seven days ended Monday was $249.89 per cwt, down $0.72. This compares with Tuesday’s Oct contract settlement of $246.52, down $2.60.