Agricultural financial conditions were strong during the fourth quarter throughout the Ninth Federal Reserve District, according to the Minneapolis Fed’s fourth quarter agricultural credit conditions survey. Ag lenders reported that loan repayments and farm incomes have increased. Corn yields were robust, while soybean yields suffered due to drought. Dairy farmers have begun to rebound from previous declines in prices. Cattle prices through 2003 led to higher incomes, but the effects of mad cow disease are expected to play out this year. The outlook for 2004 is promising, as lenders predicted an increase in farm income and loan demand.

Farm income, farm household spending and capital investment

• An increase in farm income during the fourth quarter was reported by 59 percent of respondents, while a third noted no change. Only 8 percent reported below-normal levels of income, the lowest figure in recent survey history.
• Household spending was strong: One-third of the lenders reported an increase and 61 percent noted no change in the fourth quarter. And 94 percent predicted household spending would remain constant or increase during the first quarter.
• Capital spending also stayed fairly stable, with only 16 percent of lenders reporting a decrease. The outlook for capital spending is generally positive, although 33 percent of Wisconsin lenders and 23 percent of South Dakota lenders expected a decrease in the first quarter.

Loan repayment, renewals and limits

• Loan repayments were stable or increased across the district during the fourth quarter. Only 9 percent of lenders reported a decrease in loan repayments. The demand for renewals or extensions remained constant, according to 74 percent of the respondents, while 12 percent reported an increase.
• District lenders reported that 23 percent of their farm and ranch customers were at their loan limit—from a high of 33 percent in Montana down to 18 percent in South Dakota.

Demand for loans, required collateral and interest rates

• Loan demand through the fourth quarter remained steady, as 62 percent of lenders reported no change and 20 percent noted an increase.
• Collateral requirements were also steady; only 8 percent of lenders reported an increase and none reported a decrease.
• Average interest rates for fixed and variable loans fell slightly from the third quarter of 2003, resulting in some of the lowest rates last year.
• Most lenders reported sufficient availability of funds, but 10 percent of respondents in Wisconsin noted a decrease in their fund availability.

Land values

• District ranchland and farmland prices rose an average of 25 percent and 16 percent, respectively, from fourth quarter 2002.

The Federal Reserve Bank of Minneapolis’ quarterly survey included 130 agricultural bankers in Montana, North and South Dakota, northwestern Wisconsin and Minnesota. The Upper Peninsula of Michigan is not part of the survey. See the complete results.

As one of the 12 Federal Reserve Banks, the Federal Reserve Bank of Minneapolis contributes to a variety of Federal Reserve System functions, including operation of a nationwide payments system, distribution of the nation’s currency and coin, supervision and regulation of member banks and bank holding companies, and serving as a fiscal agent for the U.S. Treasury. Additionally, the president of the Minneapolis Fed serves as a member of the Federal Open Market Committee, the monetary policymaking arm of the Federal Reserve’s Board of Governors.