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Fed: Farm credit conditions may be slipping

Agriculture.com Staff 05/15/2008 @ 8:37am

With prices surging on both sides of the crop farm balance sheet, it's been a robust period for both farmers and ag lenders. But, is a turning point nearing?

In a report this week from the Federal Reserve Bank of Kansas City, Omaha, Nebraska, branch executive Jason Henderson and assistant economist Maria Akers share signals from the Fed that may indicate the surge in farm income, spending and farmland values may be slowing.

It's not a call to sound the alarms just yet, the Fed leaders say. Key indicators show that farm credit conditions, at least according to this latest Fed survey, are healthier than ever before.

"Loan repayment rates remained at historical highs and the number of loan renewals and extensions held steady," according to Henderson and Akers. "The number of loans refused due to a shortage of funds continued to fall after spiking in 2006."

But, bankers surveyed in the KC Fed district say despite this jump in liquidity on some farms, the industry may have seen its value peak already.

"Credit conditions remained healthy, but bankers expected the improvements in credit conditions to slow going forward," Henderson and Akers write. "Fewer bankers expected loan repayment rates to improve in the second quarter."

Input costs and continuously unstable grain market prices were frequent comments in the survey of ag lenders in the KC Fed district, according to Henderson and Akers. In addition to the strain on farmers, the effects on the financial shape of grain elevators is become a serious looming concern for some.

"Of those banks financing grain elevators, most reported that grain elevators had enough cash to cover current margin calls or ample cash to cover current and future margin calls. Just over a quarter reported that local grain elevators were struggling to meet margin calls," according to Henderson and Akers. "Reports of grain elevators in financial stress were concentratedin the wheat-growing regions of the District, but tended to be heavily localized.

"With larger demands for credit, banks are reporting increases in the number of participation agreements. One respondent noted that the line of credit for a single elevator had risen eight-fold and required participation with three banks," they add.

With prices surging on both sides of the crop farm balance sheet, it's been a robust period for both farmers and ag lenders. But, is a turning point nearing?

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