Agricultural credit conditions in the Tenth Federal Reserve District tightened further in the second quarter, according to a report from the Federal Reserve Bank of Kansas City Tuesday.
The authors, Federal Reserve Economists Cortney Cowley and Ty Kreitman, said, alongside lower crop prices and continued elevated production expenses, farm income declined at a slightly faster pace than recent quarters, especially in states more concentrated in crop production.
BORROWER LIQUIDITY DECLINES
In addition, more agricultural banks reported farm borrower liquidity declined relative to last year, Cowley and Kreitman said. Cattle prices continued to rise through mid-year, however, providing some support to farm borrowers and values for ranchland.
Despite sharp declines in farm income and capital spending, agricultural credit stress remained limited, but signs of financial pressure appeared, the economists said.
Lenders reported modest deterioration in farm finances, farm loan repayment rates declined at a gradual pace similar to recent quarters, and repayment problems on farm loans rose slightly, they said. Any additional weakening in incomes and liquidity could increase the risk of deterioration in credit conditions.
Tenth-District farm incomes continued to weaken alongside cost pressures that remained elevated, the report said. Although the pace of decline in farm income slowed, more than 60% of agricultural lenders reported farm income was lower than a year ago.
Strong prices supported profit margins in the cattle sector, but prices for crops declined faster than production expenses, the Federal Reserve said.
FARM INCOME LOWER
Farm income was lower in all states, but the retraction remained especially pronounced in areas more affected by low crop prices, the economists said. The index of farm income was lower in Kansas, Missouri and Nebraska.
After strengthening last quarter, farm income in the mountain states and Oklahoma declined in the second quarter as 30% of lenders there reported lower farm income than a year ago, they said.
Profits showed some signs of moderating, the report said. About 45% of crop and livestock lenders reported a moderate increase in year-to-date and planned production expenses relative to a year ago, which was similar to last year.
In contrast to recent years, however, only 5% of lenders reported significant increases in production expenses and a sizeable share also reported a decline in costs, the Bank said.
Ongoing expenses and low prices for key commodities further reduced farm liquidity, they said. The share of banks reporting lower farm borrower liquidity steadily increased since 2021 and climbed to more than 70% in the second quarter.
And, 65% of banks expected liquidity to continue declining in the next quarter.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $187.77 per cwt to $189.04, compared with last week’s range of $186.43 to $197.25 per cwt. FOB dressed steers, and heifers went for $297.86 per cwt to $303.53, compared with $295.76 to $308.46.
The USDA choice cutout Monday was up $1.10 per cwt at $316.93 while select was up $0.44 at $300.61. The choice/select spread widened to $16.32 from $14.12 with 121 loads of fabricated product and 17 loads of trimmings and grinds sold into the spot market.
The weighted average USDA listed wholesale price for fresh 90% lean beef was $377.15 per cwt, and 50% beef was $166.31.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.50 to $1.60 a bushel over the Sep corn contract, which settled at $3.77 3/4 a bushel, down $0.05 1/2.
No live cattle contracts were tendered for delivery Tuesday.
The CME Feeder Cattle Index for the seven days ended Monday was $245.09 per cwt, down $0.48. This compares with Tuesday’s Aug contract settlement of $246.47, up $2.07.