Lending at commercial banks associated directly with farm production strengthened in the second quarter, said Nate Kauffman and Ty Kreitman, economists at the Kansas City Federal Reserve Bank, in a white paper Wednesday.
According to a survey called Survey of Terms of Lending to Farmers, the volume of new operating loans increased 20% from the year-ago quarter, which followed a year-over-year increase of 12% last quarter, Kauffman and Kreitman said. The rise in lending activity was attributed primarily to larger loan sizes at small and mid-sized lenders and was accompanied by a slight increase in average interest rates and slightly longer maturities.
LOAN DEMAND RISES WITH EXPENSES
Following several years of subdued activity, demand for farm loans has rebounded alongside elevated production expenses and a moderation in farm sector liquidity, the economists said. Alongside strong growth in new lending, outstanding non-real estate loan balances at commercial banks surged.
Despite climbing swiftly from low levels in recent years, outstanding balances and new volumes of operating debt remain below historic averages after adjusting for inflation, the Bank white paper said. Additional contraction in farm incomes and liquidity likely would increase financing needs further and interest costs could become increasingly burdensome for some farmers and ranchers.
CONCENTRATED AT SMALL, MIDSIZED BANKS
The strong growth in lending activity associated with production was spurred by larger loans at small and mid-sized lenders, the economists said. The average size of loans reported by small or mid-sized banks increased to a record high for the second quarter and the size of loans at large banks dropped considerably.
The drop in loan size cut lending volumes at large banks to a 20-year low, they said. Meanwhile, volumes at smaller lenders grew from historically low levels last year but remained less than previous decades.
Despite the notable pace of growth, lending volumes for most major loan types also remained subdued on an inflation-adjusted basis, the KC Federal Reserve said. The volume of non-real estate loans was still 20% less than the average of the second quarter over the past two decades. Farm machinery lending was particularly subdued, dropping to a level 40% below the recent historic average.
Lending activity picked up despite interest rates on farm loans hovering at multi-decade highs, the economists said. The average interest rates charged on all types of agricultural loans notched up slightly from the previous quarter and have been higher than the average of recent decades since early 2023.
The combination of higher lending volumes and elevated interest rates likely will be particularly burdensome for highly leveraged borrowers, they said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $188.00 per cwt to $200.95, compared with last week’s range of $188.36 to $200.93 per cwt. FOB dressed steers, and heifers went for $299.46 per cwt to $303.80, compared with $300.74 to $312.62.
The USDA choice cutout Wednesday was down $1.10 per cwt at $318.16 while select was off $3.15 at $298.44. The choice/select spread widened to $19.72 from $17.67 with 145 loads of fabricated product and 18 loads of trimmings and grinds sold into the spot market.
The weighted average USDA listed wholesale price for fresh 90% lean beef was $375.36 per cwt, and 50% beef was $131.58.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.67 to $1.80 a bushel over the Sep corn contract, which settled at $3.98 a bushel, up $0.02 1/4.
The CME Feeder Cattle Index for the seven days ended Tuesday was $261.32 per cwt, down $0.05. This compares with Wednesday’s Aug contract settlement of $258.55, down $0.07.