Farm operating debt at commercial banks continued to increase at a rapid pace through mid-year, according to a report from the Federal Reserve Bank of Kansas City.
According to quarterly bank reports, outstanding non-real estate farm debt at commercial banks grew about 10% from a year ago during the second quarter, said Economists Nate Kauffman and Ty Kreitman, authors of the report. The rise was even more substantial at agricultural banks where debt balances have rebounded to longer-term trends.
A moderation in the agricultural economy and lower farm sector liquidity has spurred higher financing needs, and credit conditions have shown signs of tightening, the economists said.
However, despite inching slightly higher, delinquency rates on farm loans remained limited through mid-year, the report said.
FARM PRODUCTION LOANS STRONG
Growth in farm production loans stayed strong through mid-year as the agricultural economy continued to soften, the economists said. The outstanding balance of real estate and non-real estate (operating) loans at commercial banks increased about 2% and 10% from a year ago, respectively.
The rapid increase in non-real estate debt pushed balances nearer to, but still below, the historical trend after adjusting for inflation, the report said. Growth in real estate debt, however, remained subdued following a substantial retraction in 2021.
The increase in farm debt was notably more pronounced among agricultural banks, the economists said. The outstanding balance of real estate and non-real estate (operating) loans at commercial agricultural banks increased roughly 6% and 15% from a year ago, respectively. For those lenders, real estate and non-real estate debt balances were near the long-term trend.
LIQUIDITY TIGHTENS
Liquidity for agricultural lenders has tightened alongside recent loan growth, the report said. The loan-to-deposit ratio among farm lenders increased to the highest level since 2020.
Agricultural bank liquidity has declined from record levels alongside strong loan growth and elevated competition for deposits that has led to increased use of alternative funding sources at community banks.
Capital levels at agricultural banks grew slightly alongside steady earnings, the economists said. The tier 1 leverage capital ratios increased modestly from the previous quarter, remaining solid but less than the 10-year average.
The net interest margin and return on assets at agricultural banks was mostly unchanged over the quarter as elevated funding costs kept margins tight, the bank report said.
Credit conditions have tightened along with farm finances in recent months, but loan delinquency rates remained low. About 1% of real estate and non-real estate farm loans were past due at least 30 days in the second quarter, a slight increase from record low levels a year ago.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $185.99 per cwt to $186.97, compared with last week’s range of $180.03 to $188.29 per cwt. FOB dressed steers, and heifers went for $290.88 per cwt to $293.20, compared with $288.63 to $297.87.
The USDA choice cutout Tuesday was up $0.91 per cwt at $306.84 while select was down $0.72 at $288.61. The choice/select spread widened to $18.23 from $16.60 with 92 loads of fabricated product and 26 loads of trimmings and grinds sold into the spot market.
The USDA-listed weighted average wholesale price for fresh 90% lean beef was $351.01 per cwt, and 50% beef was $69.38.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.28 to $1.40 a bushel over the Dec corn contract, which settled at $4.20 3/4 a bushel, down $0.05 1/4.
No delivery intentions were posted Tuesday for the Oct live cattle contract.
The CME Feeder Cattle Index for the seven days ended Monday was $248.79 per cwt, up $1.27. This compares with Tuesday’s Oct contract settlement of $250.32, up $1.47.