Federal Reserve: Agricultural credit tightened

May 18, 2009 6:10:04 AM PDT
More lenders are tightening their restrictions for agricultural loans in the Midwest at the same time that repayments on loans have dropped, The Federal Reserve Bank of Kansas City says. The Federal Reserve reported Friday that its quarterly survey found that the percentage of lenders raising collateral requirements reached another record high in the Tenth Federal Reserve District. The rate of loan repayments also fell for the second straight quarter.

Turbulent agricultural conditions contributed to the tightened farm credit, the agency said.

"The thing to take away from all of this is ... farmers are positioning themselves to get through turbulent times," Federal Reserve economist Brian Briggeman said.

The district includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming as well as parts of New Mexico and Missouri.

Lower farm incomes curbed the demand for farm loans across most of the district, making more money available for lending. Oklahoma was the only state in the region that did not experience a sharp drop in loan demand.

Bankers in Oklahoma reported the largest increase in the percentage of loans refused due to a shortage of funds, the report said.

"Based on our respondents, we did not have anybody report significant shortage of funds other than Oklahoma," Briggeman said.

The increase in bank referrals to government farm lending programs across the region was also driven by Oklahoma, where bankers were concerned about drought stress on the winter wheat crop.

Those early fears over the crop appeared well founded. The National Agricultural Statistics Service last week issued a winter wheat forecast saying Oklahoma's wheat crop was expected to come be 52 percent smaller than last year's crop because of drought and spring freeze damage.

"Things are definitely tough in Oklahoma right now on two fronts," Briggeman said.

Survey respondents reported farm income had slipped from the record highs of last year, especially in Oklahoma and Kansas. Livestock producers also were struggling with low cattle and hog prices amid waning global demand for meat.

New equipment sales slowed dramatically. The Association of Equipment Manufacturers reported a 20 percent decline in tractor sales during the quarter when compared to last year's record high, according to the report.

Farmland values appeared to stabilize after modest declines in 2008, and most bankers expected those values to hold steady, the agency reported.

Non-irrigated farmland values rose 1.4 percent across the district compared to the previous quarter, with no change in the value of irrigated acreage. Ranchland values declined by less than 1 percent, reflecting the struggling livestock sector.

Nebraska had the most dramatic fluctuations in land values with the highest gains in 2008, but also the sharpest declines in the past two quarters.

The Federal Reserve's quarterly report was compiled from 255 lenders surveyed.


On the Net:

Federal Reserve of Kansas City: http://sn.im/fed-kansas

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