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Incomes Down For Grain Farms, Up For Livestock -- Fed

The grain markets have fallen, and new data show just how much it's hitting farmers' pocketbooks, at least in terms of farm loan volume.

The Federal Reserve Bank of Kansas City on Thursday released its latest survey of ag credit conditions, and it confirms what's long been foreshadowed as grain prices have faltered: Farmers are generally having more trouble making ends meet, operating cost-wise, and that's pushing up loan volume in the nation's center, according to Kansas City Fed Omaha Branch Executive Nathan Kauffman.

"Farm income in 2014 has fallen short of previous years and has boosted the need for financing to cover production expenses. The percentage of survey respondents reporting a year-over-year increase in the demand for non-real estate farm loans has climbed substantially during 2014. In fact, 55% of bankers in the survey reported a modest deterioration in the level of working capital for crop producers in their lending area relative to last year, and 10% reported a significant deterioration," Kauffman says in a Fed report. "Conversely, only 15% of respondents reported an improvement in the level of working capital compared with a year ago."

Record crop output potential this fall and the prospect of having that grain on hand once market prices do recover wasn't enough to compel ag bankers to see higher -- or even stabilized -- farm incomes for the year. Eighty-five percent of those bankers surveyed in the Kansas City Fed district that comprises the area from Wyoming to eastern Nebraska south to northern New Mexico and the Oklahoma-Texas border. And, that projected decline is seen, on average, to be around 25%, especially considering the fact that crop insurance guarantees for the 2015 crop will likely be quite a bit lower than this year, Kauffman says.


Chart courtesy Federal Reserve Bank of Kansas City / Nathan Kauffman.

This outlook's got the region's ag bankers projecting a continued increase in operating loan renewals and extensions, in addition to declining loan repayment rates, which have to this point been higher than historical averages. Repayment rates exceeded renewal/extension rates up until late 2013, according to Fed data, and the gap is projected to widen through to next year.

"More than half of survey respondents expected loan repayment rates for corn and soybean producers to weaken in the coming months due to reduced incomes," Kauffman says. "Lower farm income has precipitated an increase in the demand for non-real estate farm loans in the Tenth District and may affect loan repayment rates in the coming months. Looking ahead, some bankers were concerned that persistent low crop prices may place further stress on profit margins and cash flow for crop producers in 2015."

The latest Fed data aren't without peaks and valleys, however; Ag lenders in areas with higher concentrations of livestock, namely cattle, say loan repayment -- a reflection of overall financial health -- is still strong in cattle country. In fact, states where cattle are more common, saw farm incomes rise.

"Regional differences in loan repayment rates have emerged along with variations in farm income and loan demand. In areas heavily dependent on crop production, such as Kansas and Nebraska, more bankers reported declines in farm income, a sharp rise in the demand for operating loans and lower loan repayment rates compared with last year," Kauffman says. "However, bankers in areas with high concentrations of livestock operations, such as Oklahoma, reported increased farm income, a modest increase in loan demand and solid loan repayment rates."


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