US agricultural credit conditions improved in the first quarter as farm real estate values increased alongside strength in the farm economy, Kansas City Federal Reserve Bank Economists Nate Kauffman and Ty Kreitman said in a Bank release.
Following a year of accelerating increases, the value of non-irrigated cropland across much of the US soared in the quarter, Kreitman and Kauffman said. The sharp growth in land values persisted despite a slight increase in farm loan interest rates.
With broad strength in farm finances, farm loan repayment rates continued to increase, keeping credit conditions strong, the pair said.
The outlook for agricultural credit conditions remained optimistic alongside persistently strong commodity prices, they said.
However, many lenders expected conditions to soften in coming months alongside the pressures to profit margins from higher input costs and harsh drought conditions in large portions of the country. And reduced profit margins or higher interest rates could limit gains in land values in the year ahead.
GROWTH REMAINS HIGH
Growth in farm real estate values remained high and accelerated in some regions, the economists said. Similar to the previous quarter, the value of non-irrigated cropland rose by more than 20% from a year ago in Federal Reserve districts with a large agricultural concentration.
The annual pace of growth increased from the previous quarter in the Dallas and Chicago districts, they said. Values in the Dallas region also accelerated on a quarterly basis, but steadied to a pace similar to early 2021 in other areas.
Strength in farm real estate values remained consistent across all states, the report said. The value of non-irrigated cropland increased by more than 20% in the majority of states during the first quarter.
The increase was particularly sharp in Iowa, Kansas and the Mountain states where values were about 30% higher than a year ago, the report said.
Agricultural real estate values continued to rise sharply despite a slight uptick in interest rates, the pair said. The average fixed rate charged on farm loans increased in all districts following an increase in the federal funds rate in mid-March.
Fixed rates increased by an average of 20 basis points from the previous quarter across all regions, with a slightly faster rise in the Chicago district.
With high commodity prices supporting farm finances, credit conditions improved further, the report said. Farm loan repayment rates increased at a pace similar to recent quarters in most regions and rose at a slightly faster pace in the Chicago and Minneapolis districts, marking the fifth straight quarter of higher rates of repayment in nearly all regions.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $140.00 to $143.60 per cwt, compared with last week’s range of $140.00 to $158.23. FOB dressed steers, and heifers went for $219.21 to $222.62 per cwt, versus $220.11 to $225.73.
The USDA choice cutout Thursday was up $1.23 per cwt at $261.70, while select was up $0.04 at $246.06. The choice/select spread widened to $15.64 from $14.45 with 75 loads of fabricated product and 11 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 unchanged at $1.55 to $1.65 a bushel over the Jul futures and for southwest Kansas were steady at even the Jul, which settled at $7.83 1/4 a bushel, up $0.01 3/4.
The CME Feeder Cattle Index for the seven days ended Wednesday was $153.46 per cwt down $1.59. This compares with Thursday’s May contract settlement of $154.12, down $1.72.