Second-quarter 10th district financial conditions in the farm economy remained solid, but Federal Reserve Bank survey contacts reported signs of slower growth that appeared likely to continue in the coming months.
Kansas City Federal Reserve Bank economists Cortney Cowley and Ty Kreitman said in a bank report that following rapid gains in farm real estate values in recent quarters, valuations moderated in the second quarter alongside recent declines in agricultural commodity prices. Farm income remained stronger than a year ago, but an increase in farm loan interest rates, drought, higher input costs and the pullback in commodity prices likely contributed to a slightly less optimistic outlook on the farm economy than in the previous quarter.
OUTLOOK BULLISH, GUARDED
While the outlook for the district’s agricultural sector in 2022 has remained bullish, lenders reported growing concerns about 2023, the economists said. A larger share of lenders reported significant increases in production expenses for producers compared with last year, the report said. In addition, several respondents commented that severe drought had reduced hay and forage, contributing to higher feed costs.
Despite those concerns, farm loan repayment problems declined to their lowest level in more than seven years, and more than half of survey respondents expected farm income to increase or remain unchanged in 2023, highlighting continued strength in the financial position of farm borrowers.
FARMLAND VALUES UP
Farm real estate values continued to rise, but the pace of growth slowed in the second quarter, the Bank said. The value of all types of farmland in the region increased around 20% from a year ago, a slightly slower pace than prior quarters.
Cropland values increased by an average of about 2% from the previous quarter, the slowest increase since the end of 2020, the economists said. The pace of increase in ranchland values also slowed somewhat but remained slightly more stable at almost 4% quarterly growth.
The slower increase in land valuations followed an uptick in farm loan interest rates, they said. Throughout the district, the average rate charged on farm real estate and production loans increased by about 70 and 60 basis points, respectively, from the last quarter.
Interest rates on operating loans remained about 30 basis points below the average from 2015-2019 while rates on real estate loans rose to within 10 basis points of that same period, the Bank said. The increase in the cost of farm real estate loans was most pronounced in Nebraska, where the average rate was slightly more than the 2015-2019 average.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $136.12 to $144.00 per cwt, compared with last week’s range of $135.00 to $142.13. FOB dressed steers, and heifers went for $212.48 to $216.96 per cwt, versus $212.71 to $217.25.
The USDA choice cutout Thursday was down $0.13 per cwt at $263.10 while select was up $0.38 at $237.46. The choice/select spread narrowed to $25.64 from $26.15 with 81 loads of fabricated product and 22 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were steady at $2.60 to $2.70 a bushel over the Sep futures and for southwest Kansas were unchanged at $0.10 over Sep, which settled at $6.29 1/4, up $0.08.
Two steer contracts were tendered for delivery against the Aug live cattle contract Thursday.
The CME Feeder Cattle Index for the seven days ended Wednesday was $178 06 per cwt up $1.53. This compares with Thursday’s Aug contract settlement of $179.95, down $0.72.