Author
"Cattle markets look better; a 25 cent increase in prices from last year should help more ranchers," is a Montana banker's assessment of the financial situation faced by his clients. This focus on long-awaited relief for cattle producers is echoed by many of the 104 other bankers responding to the quarterly survey of agricultural credit conditions conducted by the Federal Reserve Bank of Minneapolis in late May.
While increased cattle prices will not flow to many ranchers' bottom lines until the 1997 calf crop is sold later this year, the brightening light at the end of what has been a long tunnel has generally lifted confidence for both borrowers and lenders. However, many borrowers are still hard pressed. In Montana the proportion described as being against their debt limits rose another 3 percentage points to over 38 percent. But the general feeling seems to be that the worst is past and that the price recovery may be even larger in 1997 than many had hoped.
Farm income and spending
Farm income and spending estimates improved in Minnesota, North Dakota and Montana, but decreased somewhat in South Dakota and Wisconsin. Only in Minnesota does the preponderance of responses point toward above normal levels; in North Dakota and Montana there was some improvement, but levels still remain below normal. And while indicators for South Dakota decreased from the preceding quarter, they remain above those of North Dakota and Montana even after the decline.
Looking forward, Montana bankers apparently expect improved cattle prices to push income to or above normal levels during the third quarter. Wisconsin responses were few in number, but agree on income and spending levels somewhat below normal.
Farm loan volumes
Feeder loan volumes remain below usual levels, but are picking up from prior quarters as fat cattle prices improve. For example, 64 percent of South Dakota bankers rated feeder loans at or above normal levels compared to only 40 percent in the first quarter.
Other operating loans show little change, generally remaining slightly above usual levels. Machinery volumes picked up from the first quarter in all states, but most noticeably in Minnesota. Little change is evident in other intermediate-term loans and in loans secured by real estate. A higher proportion of Montana bankers describe real estate loans as above normal than in any other state—nearly four times the proportion for Minnesota and North Dakota. Written comments indicate, however, that this may be indicative of an increasing number of bankers who are taking a security interest in land owned by hard-pressed ranchers rather than an unusually active land market.
Bank credit conditions and liquidity
The availability of funds tightened marginally from the preceding quarter, but is now at normal levels. Loan payments improved, but still remain somewhat below usual levels. The change came largely from a decrease in the number of bankers who described repayments as "significantly lower than normal," and most such respondents in preceding quarters had been in cattle dependent areas.
Interest rates and land prices
While a few categories showed an uptick of 10 or 20 basis points, interest rates overall show little change from the preceding quarter. Indeed, interest rates have been quite stable for more than a year. In the last six quarters the widest variation in any of the 10 categories surveyed is 40 basis points, and fixed-rate operating loans, the bread and butter or farm lending, are at an even 10 percent for the fifth consecutive quarter.
Similarly, reported land price increases are about average for the last two years, with Minnesota continuing somewhat above the mean and Montana somewhat below. A few respondents noted that land markets are sluggish, with few sales taking place.
