Although lending activity remained elevated, total first-quarter new farm loan originations declined, according to data collected in early February by the Federal Reserve Bank of Kansas City.
The total volume of non-real estate loans remained above the historical average, but were about 10% lower than a year ago, the bank said.
However, growth in operating loans increased nearly 10% from a year earlier, the bank said. The overall decline was driven by a drop of about 30% in both livestock loans and loans for miscellaneous purposes.
Although it is unclear exactly how events related to the Covid-19 pandemic will affect farm lending moving forward, loan demand may increase as economic disruptions associated with the pandemic could put additional pressure on farm finances.
In the midst of substantial declines in prices for key agricultural commodities in March, the outlook for the farm sector and agricultural credit conditions again may be influenced by support from government programs, the Federal Reserve Bank said.
The upward trend in loan size appeared to wane, despite a larger average for operating loans, the bank said. Since 2010, the average size of farm loans has trended steadily higher, but the pace of the increase slowed following a sharp rise in late 2018 and early 2019.
Similar to loan volumes, operating loans were about 10% larger than a year ago while loans for all other purposes were smaller, the bank said. However, the average size of all loan types over the past four quarters was below the trend level of growth through the first quarter.
AVERAGE SIZE OF NON-REAL ESTATE FARM LOANS UP
For loans used to finance operating expenses, a relatively high number of large loans contributed to the increase in average size, the bank said. Despite a decline in the total number of new loans, the share and volume of short-term loans greater than $1 million increased from a year ago.
In contrast to operating lines, the volume of larger loans for all other purposes declined slightly, the bank said. Overall, loans greater than $1 million became more prevalent in the past decade and continued to influence changes in overall lending activity.
As lending for non-real estate farm uses slowed slightly from a year ago, interest rates on new farm loans declined alongside lower benchmark interest rates, the bank said. Similar to the change in the bank prime lending rate through the first week of February, the average effective rate on all non-real estate loans was about 70 basis points lower than the previous year.
The combination of lower lending volumes and interest rates in the first quarter could reduce overall interest expense for producers, the bank said.
Similar to first-quarter national trends for new loans, total outstanding farm debt grew at a slower pace in the fourth quarter of 2019, expanding at just 0.4% from the previous quarter.
CATTLE, BEEF RECAP
Limited cash cattle trade was reported in the western Corn Belt Tuesday at $150 to $155 per cwt on a dressed basis, down $13 to $15 from last week. Live-basis trade in the Plains last week was at $105 per cwt, down $7 to $8.
The USDA choice cutout Thursday was up $5.34 per cwt at $235.87, while select was up $3.76 at $225.98. The choice/select spread widened to $8.31 from $8.31 with 111 loads of fabricated product sold into the spot market.
There were no deliveries against the Apr futures contract tendered on Thursday.
The CME Feeder Cattle index for the seven days ended Wednesday was $114.56 per cwt, up $0.33. This compares with Thursday’s Apr contract settlement of $118.25, up $2.45.