Third-quarter agricultural lending at commercial banks continued to decline but showed some signs of stabilizing, said Economists Nathan Kauffman and Ty Kreitman in a release from the Kansas City Federal Reserve Bank.
Farm debt decreased at the slowest pace in two years, Kauffman and Kreitman said. Non-real estate debt declined at a substantially slower rate than recent quarters, and farm real estate loans increased slightly for the first time since mid-2019.
Performance on agricultural loans also continued to improve, leading to a five-year low in delinquency rates, the economists said. With support from stronger loan performance and lower interest expense, profitability for farm lenders remained near historic highs.
Prospects for 2021 farm income remained strong along with continued strength in agricultural commodity markets, they said. Elevated commodity prices boosted revenues for producers and supported a swift improvement in agricultural credit conditions and a surge in farmland values.
At the same time, however, input costs are up, which likely will increase credit needs and weigh on profit margins going forward, the release said.
THIRD QUARTER COMMERCIAL BANK CALL REPORT DATA
The balance of outstanding farm loans at commercial banks retracted further, but at a notably slower pace, the economists said. Driven by a slight increase in farm real estate lending and a smaller decrease in non-real estate loans, total farm debt declined by the smallest percentage since 2019.
After dropping by an average pace of about 5% in the previous four quarters, farm loans decreased by less than 2% from a year ago, the bank said.
The volume of delinquent agricultural loans continued to decline sharply alongside improved farm finances and subdued lending activity, the economists said. The volume of delinquent farm real estate and production loans continued to decline substantially, dropping by 30% and 40% from a year ago, respectively.
The quick turnaround in repayment issues led to the lowest third-quarter rate of delinquency on farm loans for since 2015, the release said.
FARM LOAN PERFORMANCE CONSISTENT
The improvement in farm loan performance was consistent for most lenders, the economists said. Following several years of deteriorating loan performance for a growing number of banks, the share of agricultural banks with farm loan delinquency rates above 2% fell to the lowest level since 2016.
Similarly, fewer than 200 agricultural banks had delinquency rates above the national historic average in the third quarter; compared with about 300 a year ago, they said.
Alongside strong loan performance, the financial performance of agricultural banks remained sound, the pair said. Despite continued compression of net interest margins, profitability at agricultural banks remained near record highs.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $138.98 to $140.88 per cwt, compared with last week’s range of $131.81 to $135.75. FOB dressed steers and heifers went for $209.66 to $217.39 per cwt, versus $205.64 to $209.84.
The USDA choice cutout Wednesday was down $1.46 per cwt at $270.22, while select was off $2.32 at $257.97. The choice/select spread widened to $12.25 from $11.39 with 190 loads of fabricated product and 37 loads of trimmings and grinds sold into the spot market.
The USDA reported Wednesday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.35 to $1.45 a bushel over the Dec futures and for southwest Kansas were unchanged at $0.40 over Dec, which settled at $5.72 a bushel, up $0.05.
The CME Feeder Cattle Index for the seven days ended Tuesday was $161.60 per cwt down $0.86. This compares with Wednesday’s Jan contract settlement of $165.82 per cwt, up $0.97.