Agricultural credit conditions in the Kansas City Federal Reserve Bank’s Tenth District continued to strengthen in the first quarter of 2021, the bank said in a release showing the results of its quarterly credit survey.
After a sharp rebound at the end of 2020, conditions in the broad agricultural economy continued to improve alongside additional increases in crop prices, the bank said. Stronger profit potential for farm borrowers supported a second consecutive quarter of significant increases in farm income, loan repayment rates and farmland values.
BORROWERS’ FINANCIAL POSITION BETTER
Overall, farm borrowers in the District were in a better financial position than at the beginning of 2020, but the pace of improvement was notably slower for livestock producers and for producers in areas affected by severe drought, the release said.
Cattle prices remained below pre-pandemic levels in the quarter, and the scope and severity of drought was a major concern in western states, the bank said. However, government programs continued to provide support amid these challenges and the prolonged buildup of financial pressure in recent years appears to have eased considerably.
First-quarter farm loan repayment rates improved significantly throughout the region, the release said. The rate of loan repayments increased rapidly for the second straight quarter in nearly all states.
And, following multiple years of weakness, 40% of all respondents reported an increase in repayment rates, the highest since 2012, the bank said.
Loan demand, on average, was soft throughout the district, but varied across states, the bank said. Bankers indicated demand decreased at a modest pace in Nebraska and Kansas and increased at a modest rate across all other states.
Compared with the previous quarter, more respondents reported that loan demand had declined from a year ago in Nebraska and Kansas, but fewer lenders in Oklahoma and Missouri reported lower loan demand.
FARM INCOME STRENGTHENS
Farm income also strengthened, but at a slower pace in areas most concentrated in cattle production and exposed to intensifying drought, the release said. About 66% of all banks throughout the region reported that farm income was higher than a year ago, the largest share since 2011.
The share reporting an increase was 80% or more in Kansas, Missouri and Nebraska, but about 40% and 20%, respectively, in the Mountain States and Oklahoma.
Alongside strength in farm income and credit conditions, borrower spending also rose at a rapid pace, the bank said. Similar to farm income, the share of respondents reporting higher capital and household spending reached its highest level since 2012.
The survey marked the first time in eight years that both measures of spending increased in the same quarter, and the trend was expected to continue in the coming months, the bank said.
CATTLE, BEEF RECAP
Fed cattle traded this week at $118 to $122 per cwt on a live basis, up $1 to $3 from last week. Dressed-basis trading was at $189 to $192.50, up $1 to $2.50.
The USDA choice cutout Thursday was up $1.70 per cwt at $316.78, while select was down $1.25 at $295.91. The choice/select spread widened to $20.87 from $17.92 with 78 loads of fabricated product and 28 loads of trimmings and grinds sold into the spot market.
The USDA reported Thursday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.05 to $1.19 a bushel over the May CBOT futures contract, which settled at $7.19 a bushel, down $0.38 1/2.
The CME Feeder Cattle Index for the seven days ended Wednesday was $131.01 per cwt up $0.44. This compares with Thursday’s May contract settlement of $137.45 per cwt, up $0.70.