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Cattle loans pace strong ag lending -- Fed

The first quarter of this year saw ag banks lend more money to the cattle industry than they have in almost 10 years, and that trend is likely to continue through the rest of the year, according to new information from the Federal Reserve Bank of Kansas City.

Loans to the livestock sector paced ag lending in the first quarter to the tune of a 70% rise in loans with a floating interest rate for feeder livestock and more than 75% for "other livestock loans and current operating expenses," according to a report from Federal Reserve economist Nathan Kauffman.

"With expectations of further declines in crop and feed prices during 2013, the potential for improved profits also supported lending activity to other livestock operations," he adds. "In addition, loan volumes for current operating expenses, including feed, rose further following a fourth-quarter surge."

Livestock led the way, but it wasn't the only sector to see growth in loan volume. Land loans continued to trend higher as farm incomes continued to support a churning farmland market, though there were noticeable differences in this marketplace among points around the nation's center for different reasons.

"Farmland value gains were most pronounced in the dentral and northern Plains. Irrigated cropland sold particularly well in the central Plains due to concerns about water scarcity and land lease revenues from mineral rights that pushed up farmland prices in the northern Plains," Kauffman says. "Farmland values were expected to remain at record levels, and real estate loan volumes appeared to advance modestly in the first quarter of 2013."

Despite last year's drought, loan repayment backed by strong farm incomes moved higher, especially as more crop insurance payments rolled in. That kept a lid on loan delinquency too, Kauffman says.

"Profits at agricultural banks continued to improve in the fourth quarter. The average return on assets and return on equity reached their highest levels in five years," he adds. "Ample funds were available for financing as agricultural banks competed for high-quality farm loans, driving interest rates for real estate and non-real estate loans to new lows."

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