| CHICAGO, April 30
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
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
"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
"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)