Farm income and credit conditions in the Tenth Federal Reserve district tightened in the first quarter of 2024, said Kansas City Federal Reserve Bank Economists Nate Kauffman and Ty Kreitman, in a Bank release.
According to the latest Survey of Agricultural Credit Conditions, farm incomes retracted at a sharp pace, farm loan repayment rates declined at a modest pace, and loan demand rose notably, Kauffman and Kreitman said. Conditions tightened comparatively more in states with greater reliance on crop revenues and less in more cattle-heavy areas.
CARRYOVER DEBT RISES
As lenders entered the renewal period for annual operating loans, loan denials were very limited, but many reported an uptick in carryover debt and loan restructuring to meet liquidity needs, the economists said.
Conditions in the farm economy tightened alongside lower prices for many key products and higher financing costs, the Bank report said. Many lenders highlighted growing concerns about deterioration in working capital as a result of low prices, particularly for crop producers.
Strength in cattle prices, however, supported incomes for many cow/calf producers, the economists said. A larger share of banks also reported higher loan demand following multiple years of subdued credit utilization, a sign that strength in farm finances built up in recent years has moderated.
A continuation of subdued crop prices throughout 2024 likely would tighten agricultural credit conditions further, and elevated interest expenses could put additional pressure on farm borrowers, they said.
PACE OF FARM INCOME DECLINE ACCELERATES
The pace of decline in farm income in the Tenth district continued to accelerate in the early months of 2024, the Bank report said. The share of lenders reporting that farm income was less than a year ago reached 60%, the highest since early 2020.
Strong cattle prices supported profits for cow/calf producers in recent months, but a steep decline in prices of many key crops weighed on farm incomes over the past year, the economists said.
The pace of decline in farm income was notably faster in states with more reliance on crop revenues, they said. More than 70% of lenders reported lower farm income than a year ago in Kansas, Missouri and Nebraska, states with higher share of revenue from crop production.
In the other district states where cattle account for higher shares of revenue, less than a third of banks responded that incomes were down from a year ago, the report said.
Non-real estate farm loan demand picked up considerably as profits thinned, they said. Similar to farm income, the share of banks reporting that demand for non-real estate farm loans was higher than a year ago rose to the highest level since 2019 and neared 40%.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $184.00 per cwt to $185.88, compared with last week’s range of $184.00 to $188.84 per cwt. FOB dressed steers, and heifers went for $290.49 per cwt to $294.62, compared with $286.69 to $295.41.
The USDA choice cutout Wednesday was up $2.38 per cwt at $306.77 while select was up $0.49 at $294.31. The choice/select spread widened to $12.46 from $10.57 with 88 loads of fabricated product and 21 loads of trimmings and grinds sold into the spot market.
The weighted average USDA listed wholesale price for fresh 90% lean beef was $348.10 per cwt, and 50% beef was $77.58.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.36 to $1.46 a bushel over the Jul corn contract, which settled at $4.62 1/2 a bushel, down $0.05.
The CME Feeder Cattle Index for the seven days ended Tuesday was $241.79 per cwt, up $0.04. This compares with Wednesday’s May contract settlement of $243.15, down $0.12.