Fourth-quarter farm income and agricultural credit conditions improved significantly across major portions of the US, said Economists Cortney Cowley and Ty Kreitman of the Federal Reserve Bank of Kansas City, in a Bank release Wednesday.
Despite the ongoing pandemic, prices for several key agricultural commodities increased sharply in the final months of the year, the economists said.
“Dramatic improvements in crop prices drove the sharpest turnaround in agricultural lending conditions in more than a decade,” they said.
LOAN REPAYMENT RATES UP
Following years of steady deterioration, various measures of agricultural credit improved in the fourth quarter, they said. On average, farm loan repayments increased for the first time since 2013, according to regional Federal Reserve surveys of agricultural lending.
The rate of loan repayment increased from a year ago in all participating districts except Dallas, with the fastest pace of increase reported in the Minneapolis and Chicago Districts, the release said.
An increase in fourth-quarter farm income appeared to be a primary driver of the strength in agricultural credit conditions, the economists said. Similar to loan repayment rates, farm income was higher than a year ago across all participating Districts.
With better financial outcomes last year, capital spending plans of farm borrowers also strengthened in the fourth quarter and were expected to increase in all districts in coming months, they said.
Loan demand across all districts contracted at the fastest pace since 2013, and fund availability increased at the fastest pace since 2013 according to agricultural bankers. The path of both indicators was consistent across all regions, but loan demand declined at the quickest rate in the Dallas District, and liquidity growth was strongest in the Chicago District.
LAND VALUES, RENTS HOLD STRONG
Farmland values and cash rents remained strong across most reporting states, the Bank said. Although drought seemed to put some pressure on farm real estate markets in the Mountain States, values for non-irrigated cropland increased in all other states in the fourth quarter.
Gains were strongest in the Upper Plains and Corn Belt, where farmland values rose by 8% in North Dakota and 9% in Northern Illinois, the economists said.
Cash rents on non-irrigated cropland also increased moderately, they said. In the Dallas, Kansas City, Minneapolis and St. Louis Districts, cash rents rose an average of about 2% in the fourth quarter.
Lower interest rates likely provided some support to farm finances and the value of farm real estate, the release said. Compared with the previous year, rates on short-term operating loans and long-term farm real estate loans fell by about one percentage point at agricultural banks across the US in the fourth quarter.
CATTLE, BEEF RECAP
Fed cattle trading this week was at $113 to $114 per cwt on a live basis, down $1 to $1.50 from last week. Dressed-basis trading was at $180, down $1 to $2.
The USDA choice cutout Wednesday was down $1.65 per cwt at $233.03, while select was off $1.93 at $224.24. The choice/select spread widened to $8.79 from $8.51 with 87 loads of fabricated product and 33 loads of trimmings and grinds sold into the spot market.
The USDA reported Wednesday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.05 to $1.07 a bushel over the May CBOT futures contract, which settled at $5.35 1/4 a bushel, down $0.09 3/4.
The CME Feeder Cattle Index for the seven days ended Tuesday was $137.17 per cwt, down $0.37. This compares with Wednesday’s Mar contract settlement of $137.00 per cwt, up $0.47.