Farm lending slowed alongside the initial effects of the pandemic and a more pessimistic outlook for agricultural economic conditions, said a release from the Federal Reserve Bank on Kansas City’s Omaha, Neb., branch.
The volume of total non-real estate farm loans continued into a year-long trend of declines during the second quarter of 2020, the bank said. The lending slowdown generally was consistent across all types of loans.
Delinquency rates on farm loans increased at a steady pace through the first quarter, and agricultural credit conditions remained weak, the release said. Recently implemented government lending programs (Paycheck Protection Program and Economic Injury Disaster Loans) likely supplemented the financing needs of some producers while direct aid payments may help offset declines in farm revenues in 2020.
DATA SHOWS SLOWDOWN
Agricultural financing activity slowed in the second quarter, according to the Survey of Terms of Lending to Farmers done by the Federal Reserve bank. The volume of total non-real estate loans declined for the fourth straight quarter, decreasing about 13% from a year ago.
Over the past year, lending activity has declined at an average rate of more than 15%, the bank said. This measure of farm lending excludes loans provided to producers through the Small Business Administration PPP, which may have replaced traditional financing for some borrowers and supplemented existing operating lines for others.
The decline in non-real estate lending also was attributed to a drop in the total number and average size of loans, the release said. The overall decrease in the number of loans largely was because of fewer operating loans being originated.
In contrast to other types of loans, the number of loans for feeder livestock increased from a year ago, the bank said. However, the average size of feeder livestock loans was nearly 50% smaller than a year ago.
INTEREST RATES DECLINE
Interest rates on non-real estate loans decreased alongside a decline in benchmark rates, the bank said. The average rate charged on all types of non-real estate loans neared historical lows in the second quarter.
The rate charged on operating notes and loans for other livestock dropped at a slightly faster pace than other types, the release said. Overall, the average effective rate on non-real estate loans decreased by more than 150 basis points when including loans for unspecified purposes, which typically garner lower rates.
A portion of loans reported during the early May survey period were secured through the PPP, the bank said. Banks participating in the survey reported PPP loans totaling about $90 million to nearly 1,000 individual borrowers in 39 states.
The volume of PPP loans captured in the survey represented fewer than 2% of the total approvals for the agricultural sector reported by the SBA as of June 30, the release said. While some producers that had secured annual borrowing lines prior to implementation of the program likely were unable to qualify for the program, others likely were able to utilize the funds for eligible expenses.
CATTLE, BEEF RECAP
Fed cattle trading was reported this week at $99 to $103 per cwt on a live basis, up $2 to $5.50 from last week. Dressed-basis trading was done at $163 to $164 per cwt, up $3 to $4.
The USDA choice cutout Thursday was up $1.09 per cwt at $204.66, while select was up $1.19 at $192.01. The choice/select spread narrowed to $12.65 from $12.75 with 105 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday was $140.79 per cwt, up $0.19. This compares with Thursday’s Aug contract settlement of $143.47, down $1.32.