Author
"Cattle prices are better than predicted but feeder calf price barely covers the cost of production. Will be a long winter trying to put together a plan and budget to keep some of our borrowers in the agriculture business."
"Excellent soybean and corn harvest. Expect this to show up in loan reduction and spending after year end."
These contrasting comments made by two South Dakota bankers doing business 53 miles apart illustrate the wide range of financial conditions faced by farmers at year end.
On the whole, the 102 farm bankers who responded to the quarterly survey of agricultural credit conditions conducted by the Federal Reserve Bank of Minneapolis in late November saw some improvement in the financial conditions in agriculture compared both to the preceding quarter and a year earlier. But the degree of improvement depended on the mix of enterprises on which their farm customers depend. Conditions continue to be better in crops than in livestock, and among crops, corn and soybean profitability is substantially better than that of wheat and barley. Some bankers in cattle-dominant areas describe continued worsening of financial conditions for their customers.
The upshot of these differences among enterprises is a geographical pattern of profitability spreading from northwest to southeast that corresponds closely to patterns of rainfall distribution for the district: worst in very arid areas of Montana and the Dakotas where cattle ranching is the only activity, better in the somewhat less dry regions where wheat predominates and best in the high-rainfall corn-soybean regions of southern Minnesota and western Wisconsin. This pattern is most evident in estimates of farm income, but the effects of income cascade through spending, loan repayment rates, loan renewals and proportions of borrowers against their credit limits.
Farm income and spending
Income and spending indicators remained high in Minnesota and rose in Wisconsin, where they were already above normal, and in South Dakota, where they are now near usual levels. But they dropped in Montana and in North Dakota, where continuing problems for cattle raisers and unexpectedly large declines in wheat prices soured the agricultural economy. Household spending is near normal levels everywhere except Montana. Capital spending is more restricted, exceeding normal levels only in Minnesota and Wisconsin.
Farm loan volumes
Livestock loan volumes, which on average have been rated below normal for seven consecutive quarters, show some growth. A small but growing minority of reporting bankers saw levels above normal, especially in Montana and North Dakota, but half continue to characterize livestock loan activity as below normal.
Harvest revenues apparently have allowed many farmers to pay down other operating loans. Only 14 percent of the bankers rated volumes of such loans as above normal.
Machinery and other intermediate-term loan volumes are essentially unchanged from the third quarter, as are real estate loans. And few bankers expect significant increases in first quarter 1997.
Bank credit conditions and liquidity
Bankers say that they have adequate levels of available funds, and loan-to-deposit ratios dropped slightly in all states except Wisconsin. Nearly twice as many bankers report above-normal loan payment rates as in the preceding quarter. Most of those describing repayment rates as lower than usual are from Montana and North Dakota. About 15 percent of bankers describe their collateral requirements as above normal and higher than a year ago.
Interest rates and land prices
Interest rates are the nonnews of the quarter. On the whole, land price change estimates vary little from the prior quarter. Minnesota and South Dakota are exceptions, with most of the strength in the South Dakota sample coming from the eastern part of the state, where corn and soybeans predominate.
