Farm debt balances at commercial banks grew steadily in the third quarter but loan performance remained strong, said Kansas City Federal Reserve Bank Economists Nate Kauffman and Ty Kreitman said in a Federal Reserve Bank release.
Despite some indications of slower lending activity in recent surveys and subdued loan demand for some lenders, outstanding debt at commercial banks in aggregate grew at a pace similar to the past year, Kauffman and Kreitman said. Alongside ongoing strength in farm finances, delinquency rates on agricultural loans dropped for the third straight year and remained at historically low levels.
STEADY LOAN GROWTH
Steady loan growth coincided with a pullback in deposit growth and firmed liquidity at agricultural banks, the economists said. Higher interest rates induced greater competition for deposits, pushed up costs of funding and compressed net interest margins slightly.
Profits for agricultural banks, however, remained solid with support from higher interest income, the Federal Reserve said. Sound liquidity continued to ease much of the risk surrounding elevated levels of unrealized losses at many banks and will remain important going forward.
The balance of agricultural debt continued to increase alongside growing demand for production loans, the economists said. According to commercial bank Call Reports, farm debt was about 5% higher than the same time a year ago and has increased at a similar pace for nearly two years.
The pace of growth in non-real estate debt was steady while growth in farm real estate debt was softer than previous quarters, they said.
FARM DEBT SUBDUED
Despite steady growth, farm debt remained subdued at some banks while growing considerably for others, the report said. Farm loan balances were lower than a year ago for a quarter of agricultural banks and half of non-agricultural banks. Outstanding debt grew by less than 10% for most agricultural banks, but increased more than 10% for a third of lenders.
Third-quarter agricultural loan performance remained strong, they said. Delinquency rates on real estate and non-real estate loans declined for the third straight year at agricultural and non-agricultural banks.
Delinquencies dropped to all-time lows on real estate loans and were marginally higher than the all-time low for non-real estate loans, the report said.
Financial performance at agricultural banks also remained sound, despite some compression in margins and persistently elevated unrealized losses, the Bank report said. The return on average assets at agricultural banks remained near the historic average but was reduced slightly alongside a modest drop in the net interest margin that was squeezed by higher funding costs.
The unrealized losses on investment portfolios remained elevated, but measures of capital excluding those valuations continued to improve.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $174.60 per cwt to $180.00, compared with last week’s range of $174.33 to $178.97 per cwt. FOB dressed steers, and heifers went for $275.29 per cwt to $278.45, compared with $278.23 to $280.42.
The USDA choice cutout Wednesday was down $3.19 per cwt at $290.56 while select was up $0.77 at $259.90. The choice/select spread narrowed to $30.66 from $34.62 with 171 loads of fabricated product and 65 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.20 to $1.35 a bushel over the Mar corn contract, which settled at $4.84 1/4 a bushel, down $0.06 1/4.
No delivery intentions were posted for Dec live cattle Wednesday.
The CME Feeder Cattle Index for the seven days ended Tuesday was $224.23 per cwt, up $0.45. This compares with Wednesday’s Jan contract settlement of $210.15, down $4.55.