Farm real estate debt at commercial banks grew modestly in the first quarter, while production loans remained steady, said Economists Nate Kauffman and Ty Kreitman of the Kansas City Federal Reserve Bank, in a report.
Alongside soaring farmland values, real estate loan balances increased at the fastest pace in nearly four years and drove an increase in overall agricultural lending, the economists said. Following a sharp pullback over the past two years, non-real estate lending was stable from a year ago. Farm loan performance also continued to improve, but performance at agricultural banks remained limited by compressed net interest margins and a glut of liquidity.
The farm economy remained strong alongside decade-high commodity prices that continued to support farm finances, the report said. Many producers benefitted immensely from strong cash balances, but credit needs may rise as higher input costs weigh on profit margins.
Estimates of new loan activity among a sample of commercial banks showed that farm lending accelerated during recent months alongside an increase in the size of operating loans and many bankers also reported expectations of higher loan demand in the months ahead.
Q1 LOAN BALANCES UP
An increase in farm real estate debt boosted agricultural loan balances in the first quarter, the economists said. Agricultural real estate loans increased about 5% from a year ago, which was the fastest pace of growth since 2018.
Production loans showed further signs of stabilizing and were nearly unchanged from this same time in 2021 after declining most of last year, they said.
The growth in farm loans was driven by higher outstanding balances at large and mid-sized agricultural lenders, the report said. Farm real estate loans increased about 10% from a year ago at banks with large and mid-sized farm loan portfolios but were mostly stable at the smallest farm lenders.
In contrast, non-real estate debt was substantially lower at banks with small agricultural portfolios and increased at the largest lenders, they said.
DELINQUINCIES DROP
Alongside strong farm finances, loan performance improved further, the bank said. The delinquency rate on farm real estate loans dropped to the lowest level on record for the first quarter, and the rate of delinquency on production loans reached the lowest level since 2015.
The drop to historic lows was driven by continued sharp reductions in the volume of delinquent loans, the data showed.
Despite strong credit conditions, financial performance at agricultural banks continued to be constrained by subdued loan demand and the low interest rate environment, the economists said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers last week ranged from $138.47 to $147.00 per cwt, compared with the previous week’s range of $138.47 to $147.00. FOB dressed steers, and heifers went for $216.01 to $219.32 per cwt, versus $216.01 to $219.32.
The USDA choice cutout Monday was up $2.32 per cwt at $269.58, while select was up $1.07 at $251.09. The choice/select spread widened to $18.49 from $17.24 with 68 loads of fabricated product and 12 loads of trimmings and grinds sold into the spot market.
The USDA reported that basis bids for corn from feeders in the Southern Plains were up $0.20 at $1.75 to $1.85 a bushel over the Jul futures and for southwest Kansas were steady at even the Jul, which settled at $7.42 ½ a bushel, up $0.15 1/2.
No live cattle delivery intentions were posted Monday.
The CME Feeder Cattle Index for the seven days ended Friday was $158.53 per cwt up $4.24. This compares with Monday’s Aug contract settlement of $171.97, down $1.90.