Farm debt at commercial agricultural banks continued to grow at a moderate pace in the second quarter, said Ty Kreitman, Kansas City Federal Reserve Bank economist, in a Bank publication.
According to Reports of Condition and Income, growth in farm debt remained considerably stronger at banks most concentrated in agricultural lending compared with other banks, Kreitman said. Strong growth pushed aggregate farm debt balances at agricultural banks to record highs.
Outstanding real estate and non-real estate debt at agricultural lenders from the second quarter climbed and remained well above recent historic averages adjusted for inflation.
For non-agricultural banks, production debt remained subdued and outstanding balances of real estate debt were slightly below the 20-year average.
LOAN DEMAND UP, WORKING CAPITAL DOWN
Demand for financing increased alongside weak profit margins and reduced working capital for crop producers, he said. Delinquency rates on agricultural loans remained low, but increased slightly alongside gradual deterioration in farm financial conditions.
F arm real estate debt was 5% higher than a year ago at agricultural banks and decreased slightly at non-agricultural banks, Kreitman said. Growth in production debt also remained strong at those banks concentrated in farm lending, increasing nearly 10% from a year ago.
Earnings and capital performance at agricultural banks remained sound with support from loan growth while liquidity tightened, the Bank report said.
Disparities in the agricultural economy persisted into September with favorable conditions for livestock producers and weak profit opportunities in the crop sector, Kreitman said. Strength in livestock industries, particularly cattle, supported farm finances in some regions.
Recent ad hoc government payments associated with the American Relief Act and resilient farm real estate values also eased some stress in the sector, the Bank said.
Looking ahead, however, low crop prices and elevated production expenses likely will continue weighing on farm finances and credit conditions in the coming months, he said.
EARNING PERFORMANCE UP
Earning performance for agricultural banks strengthened alongside strong loan growth, and liquidity tightened, Kreitman said. The net interest margin increased to the highest level since early 2020 with support from higher interest income, and return on assets improved notably from a year ago. While strong loan growth supported returns, increased lending also led to a slightly higher loan-to-deposit ratio at agricultural banks.
About 1.3% of farm loans at agricultural and non-agricultural banks were delinquent in the second quarter, he said. More than a third of agricultural banks had no past due or nonaccrual farm loans and only a quarter of agricultural banks had delinquency rates above 1.5%.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $238.29 per cwt to $244.00, compared with last week’s range of $238.00 to $245.28 per cwt. FOB dressed steers and heifers went for $376.02 per cwt to $379.73, compared with $375.80 to $385.32.
The USDA choice cutout Thursday was down $5.42 per cwt at $371.97 while select was down $2.97 at $353.45. The choice/select spread narrowed to $18.52 from $20.97 with 143 loads of fabricated product and 15 loads of trimmings and grinds sold into the spot market.
The USDA-listed the weighted average wholesale price for fresh 90% lean beef as $433.92 per cwt, and 50% beef was $144.87.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.10 to $1.25 a bushel over the Dec corn contract, which settled at $4.25 3/4, up $0.01 1/2.
The CME Feeder Cattle Index for the seven days ended Wednesday was $364.10 per cwt, up $2.79. This compares with Thursday’s Sep contract settlement of $365.42, up $0.05, and Oct’s $354.05, down $5.57.