Extreme weather and rising input costs eroded farm income in the second quarter in states that make up the 10th Federal Reserve District. "In the Southern Plains, severe drought lowered wheat yields and poor pasture conditions hastened herd liquidations and increased cattle feeding costs," say Jason Henderson and Maria Akers in the Federal Reserve Bank of Kansas City’s Agricultural Credit Conditions report.
They note that plentiful rainfall improved growing conditions in the Central Plains but worsened flooding along the swollen Platte and Missouri Rivers. Furthermore, high crude oil prices and rising feed costs drove farm production expenses higher.
With shorter profit margins, bankers note less capital spending on machinery and equipment. However, more bankers indicate that rising fuel, fertilizer and feed costs could boost operating loan demand in the fall.
Despite weaker farm incomes, bankers report strong farm loan portfolios in the second quarter. Although loan repayments slowed from record highs, bankers expect repayment rates to rise over the next three months. Most bankers have few nonperforming farm loans, and those with delinquencies say they think that most repayment issues can be managed without major loan restructuring or forced sale of assets.
During the second quarter, district farmland values rose further, although the pace of gain slowed. Compared to first-quarter gains, district cropland values rose moderately and remained 20% above year-earlier levels. Oklahoma bankers reported the smallest year-over-year farmland values and the sharpest decline in farm income. Farmland values there were up 10.5%, while Nebraska farmland values appreciated the most compared with both last quarter and last year, posting a 30% year-over-year gain. Looking ahead, the majority of bankers say that farmland values will hold at current levels for the rest of the growing season.
Interest rates fell further as lenders compete for quality borrowers. In the second quarter, interest rates averaged 6.5% on operating loans and 6.2% on real estate loans.
The district includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri.
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