Author
"Crops look excellent, low cattle prices are still a big negative," is one South Dakota banker's appraisal of Ninth District agriculture, and it is echoed by many among the 104 farm bankers who responded to the quarterly survey of agricultural credit conditions conducted by the Federal Reserve Bank of Minneapolis in late August.
Despite continuing problems for cattle producers, and the late state of crop development that concerned many at the time of the survey, bankers were generally more optimistic than in late spring. Farm income and spending indicators improved everywhere except Montana, where cattle are most important and the only district state to suffer drought this season.
Farm income and spending
Income and spending indicators are up everywhere except Montana, where cattle production is dominant and where drought occurred this season. Third quarter increases, which followed similar gains from the first to second quarters, have raised income and spending estimates for Minnesota and Wisconsin to well above normal levels and brought North Dakota nearly to normal. But South Dakota bankers, despite some improvement, still rate income and capital spending as well below normal. They do expect these categories to improve in the next quarter, however, and describe household spending as normal. Several bankers noted that few producers benefited from high grain prices earlier in the season, since many had sold 1995 crops soon after harvest. One western North Dakota banker noted several bankruptcies in his area. But bankers in Minnesota described farm financial conditions as the best in a decade.
Farm loan volumes
"Livestock loans are less due to low prices. Operating loans are high for crops due to increased prices on inputs," says a Minnesota banker. Considering all five categories of loans in the survey, there was little change in estimates of loan volumes compared to the second quarter. Livestock loans declined from late spring and remain well below usual levels.
Operating loans are largely unchanged from the prior quarter and are above usual levels. However, most bankers expect this category to return to normal in the final quarter of 1996 as the crop is brought in. Machinery and other intermediate loans are expected to rise to normal in the next quarter, and real estate loan volumes are generally not expected to change this year.
Bank credit conditions and liquidity
Loan repayment rates continue to improve and are now normal or above. Renewals show a modest drop, and referrals to correspondent banks and other lenders are largely unchanged.
Most banks report loanable fund levels as normal, down slightly from the preceding quarter. Loan-to-deposit ratios increased for all states except Wisconsin and are all in the 71 percent to 74 percent range. Proportions of borrowers at debt limits increased somewhat in all states and now range from 19 percent in Wisconsin to 46 percent for Montana.
Interest rates and land prices
There was no significant change in interest rates compared to the preceding quarter and rates on all classes of loans remain below year-earlier levels.
Land price changes mirror estimates of income and spending, lowest in Montana and highest in Minnesota. Somewhat surprisingly, given relatively strong crop prices and weak cattle prices, Montana bankers report that the market for crop land in their state is even more stagnant than that for grazing land. Moreover, none cited the influence of out-of-state hobby buyers, the first such omission in several quarters. Southern Minnesota appears to have the strongest market. "Land prices up at least 10 percent, rents up to $140 to $150 like the '80s. Watch out!" warns one banker near the Iowa border.
