Steady demand for operating and feeder livestock loans boosted farm lending at commercial banks in the third quarter, said Ty Kreitman, associate economist for the Omaha office of the Kansas City Federal Reserve Bank, in a release.
According to the National Survey of Terms of Lending to Farmers, the volume and average size of loans for operating expenses and feeder livestock continued to grow, Kreitman said. Demand for larger loans grew as cattle prices surged and production costs remained elevated.
FARM LOAN RATES DOWN SLIGHTLY
Farm loan interest rates decreased slightly, but the drop was less pronounced for feeder livestock loans, and rates on these loans remained comparatively higher than other loan types, the economist said.
Conditions in the US agricultural economy remained unequal as weak crop prices weighed on growers and strong cattle prices boosted profits for many operations, Kreitman said. Despite strength in the cattle and other livestock industries, farm financial conditions deteriorated gradually, and weak crop prices moving into harvest could further deplete working capital for many producers.
The distribution of assistance from the American Relief Act earlier in the year provided modest support to the sector, and financial stress has remained relatively limited, but further deterioration in farm finances and credit conditions is likely in the coming months.
LOAN DEMAND REMAINS STRONG
Third-quarter demand for farm lending at commercial banks appeared to remain strong, he said. The volume of new non-real estate farm loans was about 7% higher than a year ago following a slight decline in the previous quarter, attributed to an increase in operating and feeder livestock loans.
The volume and size of operating loans continued to grow alongside a steady rise in farm production expenses, Kreitman said. Production costs measured by the index of prices paid by producers were more than 10% higher than a year ago. At the same time, the average size and volume of operating loans increased at an average pace of about 30% and 20%, respectively.
FEEDER LOAN DEMAND UP SLIGHTLY
Feeder livestock lending similarly increased alongside significant strength in cattle prices, the Fed release said. The average third-quarter cattle price was nearly 30% higher than a year ago, he said. At the same time, the average size and volume of operating loans increased at an average pace of about 100% and 50%, respectively.
Interest rates on farm loans declined slightly alongside the recent reduction in the target range of the federal funds rate, Kreitman said. During the survey period in early August, the average rate on operating loans decreased about 20 basis points from the previous quarter.
The average rate on feeder livestock loans declined only 10 basis points, he said. As the size of cattle loans has grown dramatically, the risk of those loans likely has increased and rates on those notes have remained relatively higher than other types.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $218.52 per cwt to $224.00, compared with last week’s range of $216.36 to $228.00 per cwt. FOB dressed steers and heifers went for $338.10 per cwt to $349.49, compared with $345.25 to $356.88.
The USDA choice cutout Wednesday was down $0.91 per cwt at $363.81 while select was up $2.34 at $353.12. The choice/select spread narrowed to $10.69 from $13.94 with 117 loads of fabricated product and 23 loads of trimmings and grinds sold into the spot market.
The USDA-listed the weighted average wholesale price for fresh 90% lean beef as $401.31 per cwt, and 50% beef was $169.64.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.05 to $1.20 a bushel over the Dec corn contract, which settled at $4.31 1/2, down $0.06 1/2.
The CME Feeder Cattle Index for the seven days ended Tuesday was $337.78 per cwt, up $5.42. This compares with Wednesday’s Jan contract settlement of $331.85, up $1.97.