"Improved cattle prices, excellent production and high government
payments have helped our producers," commented a South Dakota
agricultural lender responding to the Minneapolis Fed's fourth quarter
agricultural conditions survey. This comment reflects the attitude
of many farm lenders, as survey results indicate a significant improvement
in farmers' financial situation from both last quarter and last
Farm income and household spending increased significantly in
the November 2000 survey compared with the August 2000 and November
1999 surveys. Also, agricultural producers are making more loan
repayments, and fewer are extending loans. Farm borrowers at their
loan limit decreased 5 percentage points from last year, and land
prices continue to increase.
Farm income and spending
"Government dollars are contributing strongly to local profits,"
said a Minnesota agricultural lender. This comment reflects the
estimated record government assistance in 2000 that has contributed
to increased farm income and spending. Nearly two-thirds of survey
respondents reported average or above-average farm income in the
fourth quarter of 2000, a 28 percentage point increase from the
same period last year. This increase in income has benefited farm
household spending, as nearly three of four lenders reported average
or above-average household spending in the current period compared
with only two of four lenders a year ago.
Not everyone's doing well, however, as a third of lenders reported
that agricultural producers earned below-normal farm income, due
mostly to higher operating costs, lower dairy prices and natural
disasters. The hardest hit area of the district is western Wisconsin,
as all lenders report below-average income because "milk prices
have been very low for close to a year," as a Wisconsin lender
Even though income is up for most producers, capital spending
remains depressed. Nearly three of five lenders report below-average
levels of capital spending, compared with four of five lenders a
year ago. Again, the hardest hit area was in dairy country, as all
western Wisconsin lenders reported below-average farm capital spending.
Farm loan volumes
"Demand for cow-calf loans is up with continued improvement
in feeder calf prices," said a Minnesota lender. This comment
reflects the general mood of lenders as four of five reported average
or above-average loan demand for feeder livestock. Meanwhile, demand
for other types of loans have returned to more normal levels, as
two-thirds of lenders report normal demand for other intermediate
loans and over four of five report average demand for other operating
Machinery loans and real estate lending remain subdued. Half the
lenders reported below-normal levels of machinery loans, although
this is an improvement from a year ago when 71 percent of lenders
reported below-normal levels. Meanwhile, nearly half of lenders
reported real estate loan volume as below normal, a 5 percentage
point deterioration from a year ago. Montana lenders reported the
biggest decrease in real estate loans; 63 percent of lenders reported
below-average levels this quarter compared to 38 percent a year
Bank credit conditions and liquidity
The increase in farmer profitability has helped farmers repay loans.
Normal and above-normal levels of loan repayments were reported
by 85 percent of lenders, a 17 percentage point increase over last
year's results. Renewals and extensions decreased, as 11 percent
of respondents indicated above-average levels, compared with over
a quarter of the lenders in fourth quarter 1999.
Moreover, the number of farmers at their debt limit decreased
from 33 percent in the fourth quarter of last year to 28 percent
in the fourth quarter of 2000. However, "we are noticing an
increase in accounts payable on dairy operations," noted a
Wisconsin lender. Availability of funds does not seem to be a problem:
Only 5 percent of lenders reported refusing to make a loan due to
shortage of funds.
Land values, collateral and interest rates
Land prices continue to rise. Cropland prices increased over last
fall's prices from an average of 2 percent in Montana to 7 percent
in western Wisconsin. In addition, pasture land price increases
ranged from an average of 3 percent in North Dakota to 13 percent
in western Wisconsin over those of a year ago. Collateral levels
remained normal, as 82 percent of lenders reported average levels
of required collateral. Meanwhile, interest rates for farm loans
have decreased about 10 basis points from the third quarter of 2000.
"We expect lower farm income to return in the future when
less favorable weather conditions return, government payments decline
and low commodity prices continue to plague our customers,"
said a South Dakota lender. Others shared this view, as 37 percent
of lenders expect below-normal income levels in the next three months,
while only 19 percent expect above-normal income. The outlook for
capital spending is even less bright: 58 percent of lenders expect
below-normal capital spending over the next three months.
|Fixed Interest Rates *
|4th Q '99
|1st Q '00
|2nd Q '00
|3rd Q '00
|4th Q '00
|* Average of
reported rates in mid-November 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 November, 99 bankers
responded regarding conditions during the fourth quarter 2000.