Farm loan demand remained muted at commercial banks in the first quarter of 2021, said the Federal Reserve Bank of Kansas City in a release citing the result of a quarterly survey.
A reduction in the volume of operating loans led to an overall decline in total non-real estate lending, the bank said. Financing activity also declined more notably at banks with relatively large farm loan portfolios, while lending was more stable among small and mid-size lenders.
PANDEMIC CONTRIBUTION
Factors specific to the pandemic in 2020 likely contributed to the reduced lending activity as the year progressed, the bank said. Substantial government aid through various programs in 2020 provided financial support, which may have mitigated some producers’ financing needs toward the end of the year.
In addition, the Small Business Administration’s Paycheck Protection Program accounted for a sizable share of loans reported and likely displaced a portion of typical financing needs for some borrowers, the release said.
Despite some ongoing challenges for cattle producers, financial conditions in agriculture remained favorable alongside strength in other major agricultural commodity markets, the bank said. The outlook for the sector in 2021 remained significantly improved from recent years, but rising input costs could also weigh on profit margins in the months ahead.
Agricultural lending activity at commercial banks declined at a measured pace in the first quarter, the bank said. The total volume of non-real estate farm loans was about 10% less than a year ago, continuing a recent trend of reduced loan demand.
LENDING BELOW AVERAGE
Lending has tracked below the recent historical average on a rolling four-quarter basis since the beginning of 2020 and declined at an average pace of about 4% over that time, the release said.
Reduced demand for loans to finance operating expenses drove the overall decline in non-real estate financing the bank said. Operating loans decreased by about $12 billion from a year ago, which represented nearly all of the drop in non-real estate farm lending.
Large commercial banks also accounted for most of the decline from a year earlier, the release said. Loan volumes fell by nearly 14% at large banks, compared with a decrease of less than 1% at banks with smaller portfolios.
In addition to a contraction in new operating debt, bankers booked loans with historically long durations, the bank said. The amount of new operating debt declined to the lowest level for the first quarter since 2012, while the average maturity of those loans was the highest for any quarter on record.
CATTLE, BEEF RECAP
Fed cattle traded this week at $120 to $126 per cwt on a live basis, steady to up $1 from last week. Dressed-basis trading was at $193 to $196 per cwt, steady to down $2.
The USDA choice cutout Thursday was up $3.71 per cwt at $276.62, while select was up $1.12 at $268.43. The choice/select spread widened to $8.19 from $5.60 with 74 loads of fabricated product and 29 loads of trimmings and grinds sold into the spot market.
The USDA reported Wednesday that basis bids for corn from livestock feeding operations in the Southern Plains were down $0.10 to $0.04 a bushel at $1.05 to $1.16 over the May CBOT futures contract, which settled at $5.90 a bushel, down $0.04.
There were no delivery intentions posted against the Apr live cattle futures contract Thursday. None were retendered, and none were demanded or reclaimed.
The CME Feeder Cattle Index for the seven days ended Wednesday was $142.30 per cwt down $1.26. This compares with Thursday’s Apr contract settlement of $140.05 per cwt, down $1.10.