Livestock loan demand grew in the third quarter, boosting agricultural lending activity at commercial banks, said Economists Nathan Kauffman and Ty Kreitman of the Kansas City Federal Reserve, in a release.
Demand for operating loans was more subdued, however, and total non-real estate lending remained near its 10-year average, the economists said. The average size of loans for some livestock categories reached a record high and contributed to the increased lending.
While the average size of operating loans also remained elevated, a smaller number of loans limited the overall financing of operating expenses, the Federal Reserve release said.
The US agricultural economy generally remained strong as elevated commodity prices continued to support incomes, the economists said. Prices of most major crops were at multi-year highs moving into fall harvest and supported revenue prospects.
Weakness in the cattle industry persisted, however, as low cattle prices continued to limit profits for producers, they said. In addition, concerns about drought and higher input costs intensified and likely contributed to an increase in producers’ financing needs.
NON-REAL ESTATE LOAN VOLUME RISES
The volume of non-real estate farm loans increased in the third quarter, but some types of lending remained limited, the release said. Total non-real estate lending was about 8% higher than a year ago but has declined at an average pace of about 2% over the last four quarters.
A large share of the third-quarter increase was from an increase in loans used to finance feeder livestock and other livestock, which grew by about 20% and more than 50%, respectively, the Federal Reserve said. In contrast, operating loan volumes declined by about 5%.
With sharp increases from a year ago, lending for livestock purchases continued to trend above the recent historical average for the third quarter, the release said. The volume of loans for poultry and livestock other than feeders (other livestock) was nearly double the inflation-adjusted average during the same quarter from 2010-2019.
Feeder livestock loans also were slightly greater than the recent average, while operating loans were slightly less, the economists said.
LARGER LOANS
The average size of loans for other livestock continued a sharp upward trend, increasing about 30% in the third quarter and reaching an all-time high, they said. The number of other livestock loans also was higher than a year ago but remained historically low.
Similarly, the average size of feeder livestock loans also increased steadily over the past year, but the number of loans declined for the fourth straight quarter.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $125.38 to $126.23 per cwt, compared with last week’s range of $123.44 to $125.75. FOB dressed steers and heifers went for $196.33 to $196.72 per cwt, versus $193.78 to $196.35.
The USDA choice cutout Tuesday was up $1.72 per cwt at $284.76, while select was down $0.65 at $262.54. The choice/select spread widened to $22.22 from $19.85 with 79 loads of fabricated product and 57 loads of trimmings and grinds sold into the spot market.
The USDA reported Tuesday that basis bids for corn from livestock feeding operations in the Southern Plains were up $0.05 at $1.20 to $1.32 a bushel over the Dec futures and for southwest Kansas were unchanged at $0.40 over Dec, which settled at $5.43 1/2 a bushel, up 5 1/2.
No live cattle contracts were tendered for delivery against Oct Tuesday.
The CME Feeder Cattle Index for the seven days ended Monday was $155.50 per cwt down $0.39. This compares with Tuesday’s Oct contract settlement of $155.97 per cwt, up $0.35 and the Nov settlement of $159.77, up $1.30.