KANSAS CITY, Mo. — Non-real estate farm loans continued to increase in the first quarter of 2015, according to a quarterly report from the Federal Reserve Bank of Kansas City.
"Loan volumes for almost all farming purposes rose at commercial banks, as many producers contended with tighter profit margins," the Fed stated. "Persistently low crop prices and elevated input costs continued to increase farmers’ short-term financing needs."
According to the report, called Agricultural Finance Databook, the total volume of non-real estate farm loans was $8.1 billion more than in the same period in 2014. The reasons were increased borrowing for current operating expenses as well as livestock purchases. Operating loan volumes grew for the third year in a row following several quarters of depressed crop prices.
Futures prices for soybeans, for example, were under $10 in April, the report noted. That was well below where they were a year ago, when soybeans were around $15. Prices for corn are also well below what they were a year ago. Cash price for corn is about $3.50, said Larry Winum, president and CEO of Glenwood State Bank in Glenwood, Iowa, about 20 miles southeast of Omaha, Neb. Winum said what he’s seeing is farmers are buying less equipment right now and implement dealers are having to lay people off. "Farmers bought a lot of equipment earlier, so there might have been a slowdown anyhow," he said. "A lot of this is just a cycle. Our farmers are in pretty good shape."
Winum added he is seeing not so much an increased volume of loans in his area as an increase in loan amounts, since farmers are still trying to pay off loans from the previous season.
A bar graph from the report shows all non-real estate farm loans came to about $85 billion in the first quarter of 2013, $105 billion in the first quarter of 2014 and $115 billion in the first quarter of 2015.
Also, USDA projected plantings showed soybean acreage could rise to record levels this year. Corn acres are expected to decline for the third straight year, but the crop is still projected to be the third largest in U.S. records.
"As in 2014, large corn and soybean harvests could keep crop prices comparatively low, which would further weaken cash receipts for fall crops," the report stated. "This year, input costs were expected to decline less than crop cash receipts, which could put additional downward pressure on farm income and further increase the need for financing to cover expenses."
Lending for feeder livestock increased more than 20 percent as producers rebuild their herds following several years of herd liquidation, the report says. Historically high feeder cattle prices continued to sustain livestock loan volumes, but this could change as feeder cattle prices are now beginning to soften.
Regarding the hog sector, hog prices have dropped in the last two quarters because of an increase in the size of the herd, which took place after porcine epidemic diarrhea (PED) virus decimated the herd in the first half of 2014. The price for hogs went from a little under $90 per cwt. in the first quarter of 2014 to around $55 in the first quarter of 2015, the report said.
The report concluded strong profits in recent years have helped farmers deal with falling profits today; however, it stated if the trend in falling farm incomes continues, agricultural credit conditions could weaken.
