Agricultural bankers note improvement, but still concerned

"Dairy industry in our area has done well in the last six months. Grain farmers along with steer and hog operations have suffered huge loss of income compared to prior years." These comments by a Wisconsin banker accurately describe agriculture's situation over most of the Ninth District. The 102 bankers who responded to the Ninth District's fourth quarter survey of agricultural credit conditions were slightly more upbeat than three months earlier, but continue to say that many of their farm customers are under severe financial stress.

Farm income and spending

The proportion of bankers who describe farm incomes as below normal levels is 72 percent, a 10-point improvement compared to the third quarter. The proportion rating such income "substantially below" doubled from 20 percent to 41 percent. Only two of the 102 respondents thought their customers' income was above normal.

But while estimates of income improved marginally, that of capital spending worsened, with 68 percent of bankers viewing it as below usual levels. For North Dakota and Montana, the percentages are 96 percent and 89 percent, respectively. Only in Wisconsin, favored by relatively strong milk prices and declining feed costs, do a majority of bankers see spending on facilities and equipment as normal.

Household spending worsened slightly in the opinion of bankers, with the most somber estimates coming from Montana and North Dakota.

Farm loan volumes

Demand for feeder loans apparently grew in response to ample grain supplies. Only 42 percent of respondents rated loan volumes in this category as below usual levels, the lowest level so far this year and an 8-point drop from the third quarter. But machinery loan volumes hit their lowest rating in a decade as another 7 percent of bankers checked below or substantially below usual levels.

On a more positive note, the large yields achieved in many areas apparently provided some farmers with adequate cash flows to pay down operating lines. The proportion of bankers describing such loans as above usual levels was well in line with the average of fourth quarter responses for the previous three years.

Bank credit conditions and liquidity

Availability of funds does not seem to be an issue as nearly all banks report normal or above normal levels of loanable funds. Repayment rates are still weak, with 51 percent of respondents describing them as below normal, but this is a slight improvement over the third quarter. Renewals and extensions show a similar pattern, with 38 percent of bankers giving an above normal rating, but this figure is a decline from the prior quarter.

The estimated proportion of borrowers at their debt limits also dropped back somewhat. The districtwide average is 33 percent, with Montana still substantially higher at 50 percent and Wisconsin much lower at 13 percent. While still high, all states improved in this category.

Interest rates and land prices

Across-the-board declines in interest rates are another small bit of good news for farmers. All categories surveyed showed declines of 20 to 40 basis points. While such declines do little to offset low prices, rates are at their lowest level in more than four years.

In contrast, land prices showed little increase. In the case of Minnesota, a 2 percent average decline was reported, due in part to two bankers in the northwest corner of the state who reported substantial decreases in the context of very thin land markets. Many bankers saw land prices as unchanged, while a small number saw some increase. In two states-Minnesota and Montana-the number reporting decreases exceeded the number seeing increases, though those reporting no change outnumbered both groups.

Each quarter, the Federal Reserve Bank of Minneapolis surveys agricultural bankers in the Ninth Federal Reserve District, which includes Montana, North Dakota, South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. In November, 102 bankers responded regarding conditions during the fourth quarter.