CHICAGO, April 30 Farm loans at U.S. commercial banks jumped to a record high in the first quarter of 2014 as farmers tapped low interest rates to cope with lower grain revenue and rising production expenses, including livestock costs, the Federal Reserve Bank of Kansas City said on Wednesday.
Bank data showed total non-real estate loans reached $105.9 billion during the quarter. Operating loans spiked by nearly a third to $59.2 billion as farmers borrowed more to cover the cost of planting 2014 crops and purchasing pricier feeder cattle and hogs, the bank said.
"Lower crop prices reduced cash flow for farmers selling the remainder of last year's crop and overall crop input costs remained high despite a moderate decline in fertilizer prices," the Kansas City Fed said in its U.S. agricultural finance data book, which is based on a February national survey of 250 commercial bankers.
"The volume of feeder livestock loans also rose as low cow inventories kept feeder cattle prices elevated and hog prices jumped as an ongoing swine virus continued to limit hog supplies," the bank said.
Farmer operating loans rose 28 percent from year ago: link.reuters.com/heb98v
Despite an overall increase in loan volumes, farm machinery and equipment loans fell by almost a third from the same quarter a year earlier, marking the fifth straight quarter of decline, the KC Fed said.
"Capital spending may have declined because operators recently upgraded equipment in high income years when tax depreciation rules were more favorable," it said.
Fed economists and agricultural bankers have been closely monitoring farmer loan levels after corn prices dropped 30 percent in the last half of 2013. Land is the basic collateral for farm loans and bankers fear a rise in the number of over-extended farmers if land tracks grain prices lower. However, both Midwest and Plains land prices generally leveled off in fall and winter auctions, according to bankers and sales agents.
"It's not unusual that there would be this magnitude of operating loans given the size of where agriculture is relative to a number of years ago," said Nathan Kauffman, KC Fed economist and one of the authors of the databook. "The more concerning thing would be if in a year or two, these debt levels continue to rise and crop prices remain soft."
The KC survey stated that "farmland values rose at a much slower pace in the fourth quarter" of 2013. Most bankers expect land values to stabilize in 2014, while some expected modest declines given the winter outlook for lower grain prices.
Meanwhile, farmers continued to enjoy favorable interest rates. During the first quarter, average interest rates continued to edge down and average loan maturities lengthened regardless of bank size, the KC Fed said.
Total farm debt outstanding as of Dec. 31, 2013, rose 7 percent year-over-year, outpacing the 5 percent gain at the end of 2012. The volume of loans secured by farmland rose 7.3 percent, the bank said. (Reporting by Christine Stebbins; editing by Peter Galloway)