Agricultural lenders responding to the Minneapolis Fed's third
quarter survey noted a significant improvement in farmers' financial
situation over last year at this time. But in the context of low
current prices and poor overall income for several years running,
district farmers are still experiencing financial problems. The
situation would likely be much worse were it not for emergency government
payments, which are partly responsible for the uptick in current
farm income and general outlook.
Farm income, household spending and capital spending increased
significantly in the August 2000 survey compared with August
1999. Also, agricultural producers are making more loan repayments,
and fewer are extending loans. The percentage of farm borrowers
at their loan limit decreased 4 percentage points from last year;
land prices and interest rates rose.
Farm income and spending
"Cattle prices have increased, leading to some optimism for producers,"
commented a Montana agricultural lender. Farm income and spending
have increased since the third quarter of 1999. Forty-six percent
of lenders reported average or above-average farm income in the
third quarter of 2000, a 32 percentage point increase from the same
period last year. Despite drought and low grain prices, 75 percent
of Montana respondents indicated average or above-average farm income,
compared with no Montana respondents in last year's third quarter
survey. This turnaround may be due in part to ranchers selling their
Capital spending increased from a year ago. About one-third of
lenders reported normal or above-normal capital spending over the
last three months, compared with 11 percent in the third quarter
of 1999. Farm household spending also increased: 62 percent of the
lenders noted average or above-average levels in the third quarter
of 2000, compared with 41 percent last year.
Farm loan volumes
Farm loan volumes increased from a year ago. Operating loan volume,
except for feeder loans, increased slightly, as 92 percent of lenders
report ed normal or above-normal demand, compared with 86 percent
in the third quarter of 1999. In addition, demand for feeder livestock
increased, with 10 percent of lenders indicating above-normal levels
in the third quarter of 2000 vs. 4 percent in the third quarter
Machinery loans returned to more normal levels, as 46 percent
of bankers reported normal activity in third quarter of 2000 compared
to 21 percent of the third quarter 1999 respondents. Real estate
loan volume increased as 57 percent of surveyed bankers noted average
or above-average levels in the third quarter of 2000 compared with
46 percent of last year's respondents.
Bank credit conditions and liquidity
Normal and above-normal levels of loan repayments are reported
by 72 percent of lenders, a 31 percentage point increase over last
year's results. Renewals and extensions decreased, as 24 percent
of respondents indicated above-average levels, compared with half
of the lenders in the third quarter of 1999. Moreover, the number
of farmers at their debt limit decreased from 38 percent in the
third quarter of last year to 33 percent in the third quarter of
2000. Meanwhile, availability of funds is becoming a problem: 10
percent of banks reported not lending due to shortage of funds vs.
only 5 percent in last year's survey.
Land values, collateral and interest rates
"Cash rents continue to rise in this area," reported a South Dakota
lender. Cropland prices increased from an average of 3 percent in
Montana to 8 percent in western Wisconsin over last summer's prices.
In addition, pasture land price increases ranged from an average
of 6 percent in Montana to 14 percent in western Wisconsin over
those of a year ago. The solid land prices have helped farmers'
financial position. For example, over four-fifths of lenders lowered
collateral requirements to more normal levels. Meanwhile, interest
rates for farm loans have increased about 100 basis points from
the third quarter of 1999.
"Improved livestock prices and hopes of above average yields will
offset the poor grain prices," said a Minnesota agricultural lender.
Meanwhile, lenders in Montana have a different point of view. "We
are still in an extreme drought. I expect to see more cows sold
this fall in this area than usual because of lack of grass and hay,"
commented a Montana lender. This dichotomy of views is reflected
in the outlook for farm income, as only 11 percent of lenders expect
above-normal income levels in the next three months, while 51 percent
expect below-normal income. The outlook for capital spending is
even less bright: More than two-thirds of lenders expect below-normal
capital spending over the next three months.
|Fixed Interest Rates *
|3rd Q '99
|4th Q '99
|1st Q '00
|2nd Q '00
|3rd Q '00
|* Average of reported rates in mid-August 2000.
Facts about the survey
Each quarter, the Federal Reserve Bank of Minneapolis surveys
agricultural bankers in the Ninth Federal Reserve District, which includes
Montana, North Dakota, South Dakota, Minnesota, northwestern Wisconsin
and the Upper Peninsula of Michigan. In August, 101 bankers responded
regarding conditions during the third quarter.