CHICAGO, April 22 (Reuters) - Farmers in the central U.S. grain and livestock states continued to take out new operating loans in the first quarter of 2015 as low grain prices failed to cover high costs for seed, rents and crop chemicals ahead of spring field work, the Federal Reserve Bank of Kansas City said on Wednesday.
“Loan volumes for almost all farming purposes rose at commercial banks as many producers contended with tighter profit margins,” the bank said in its quarterly review of agricultural lending in the Corn Belt and Plains states which dominate U.S. grain, oilseed, cattle and hog production.
“Persistently low crop prices and elevated input costs continued to increase farmers’ short-term financing needs. High prices for feeder cattle further boosted loan volumes in the livestock sector,” the Fed said.
Corn prices set record highs in 2012 amid the biofuels boom and drought in the United States. But prices are now down by about half after two consecutive bumper American harvests. At the same time, crop production has recovered overseas, hurting wheat exports in particular.
The Fed survey, conducted the first week of February, showed non-real estate farm loans were $8.1 billion higher than the same time a year earlier. The outlook for another year of near-record harvests should keep cash flows tight in coming months, it said.
The livestock sector continued to see cyclical growth given depressed feed prices. Loans for feeder livestock led by calves rose more than 20 percent as producers rebuilt herds, the Fed said. The U.S. cattle herd grew by 2.1 percent in 2014. Meanwhile, a 40 percent drop in hog prices since June 2014 also spurred more loans to farmers.
Overall, however, credit conditions in the grain and livestock belt remain in fairly good shape with most balance sheets in good shape. Loan delinquency rates stayed low. Farmers were also locking in fixed rate loans at interest rates still near historic lows, the Fed said.
Depressed farm incomes have begun to pressure farmland values, except for high grade crop and pasture or land with oil or gas resources. But the Fed said a majority of bankers surveyed in the Plains and Corn Belt expected land values to stay steady or decline in 2015.
“Farm income has yet to fall below long-term historical averages,” the Fed said. “If the declining trend on farm income persists, however, agricultural credit conditions could weaken more noticeably in the future.” (Reporting by Christine Stebbins Editing by W Simon)