Agricultural financial conditions were poor in Montana and South Dakota
and fair in Minnesota and North Dakota, according to the Minneapolis Fed's
third-quarter agricultural credit conditions survey. An overwhelming majority
of surveyed lenders in Montana and South Dakota reported that the overall
income of their farm and livestock customers continued to fall, due to
severe drought and lower livestock prices. In addition, district lenders
reported that their dairy customers' income decreased. However, many Minnesota
and North Dakota crop producers enjoyed nearly ideal growing conditions
and higher prices. "It is a rare time for all of livestock to suffer
while the row crops could have dramatic income/acre increases over past
years," commented a Minnesota respondent. Montana and South Dakota
lenders were very pessimistic about farm income for the fourth quarter
of 2002, as were district dairy lenders.
The survey suggested that third-quarter overall farm income decreased
from a year ago. The majority of survey respondents, 58 percent, reported
a decrease in farm income, while less than one in 10 noted an increase.
Bankers were especially negative in Montana and South Dakota as 67 percent
and 82 percent of respondents, respectively, reported decreased agricultural
income. Many respondents attribute troubles to the severe drought and
lower cattle and dairy prices. "Drought conditions this summer will
limit crop income," wrote a South Dakota lender. "Prices for
calves this season are off $10 to $15 a hundred [weight]," a Montana
lender reported. Three-quarters of district lenders reported that their
dairy customers had lower income.
Meanwhile, row-crop producers in Minnesota and North Dakota are faring
better. About 60 percent of Minnesota and North Dakota lenders indicated
that farm income had increased or unchanged. "Excellent crop outlook
for both yield and price. Prices for milk and hogs are considerably below
break-even," commented a Minnesota respondent.
Decreased Farm Income From a Year Ago
Percent of Respondents
Farm household and capital spending
Household income and capital spending followed approximately the same
pattern as farm income. Household spending remained relatively smooth,
as 34 percent of overall respondents reported lower household spending,
and 60 percent expected no change. Half the South Dakota respondents revealed
lower household spending, while only 12 percent of Minnesota lenders reported
decreases. Meanwhile, the fall in capital spending was severe: 55 percent
of lenders overall indicated decreased levels, with a high of 81 percent
of South Dakota bankers and a low of 25 percent of Minnesota respondents.
Loan repayments and renewals
As income decreases, farmers and ranchers have a tough time borrowing
and repaying loans. District bankers reported that 29 percent of their
agricultural customers are borrowed up to their loan limit. "Being
borrowed up their loan limit is driven by repayment ability," commented
a North Dakota lender. Nearly a third of respondents indicated lower loan
repayments, while only 6 percent reported increased loan repayments. This
again varies by state, as 44 percent and 45 percent of Montana and South
Dakota lenders, respectively, said loan repayments were down, while 21
percent and 23 percent of Minnesota and North Dakota bankers reported
Meanwhile, as loan repayments decrease, loan renewals actively increased.
Thirty-one percent of respondents reported increases in loan renewals,
but a mere 3 percent reported decreases. The state pattern holds again
as 44 percent and 36 percent of Montana and South Dakota lenders, respectively,
said loan renewals were up, while 21 percent and 23 percent of Minnesota
and North Dakota bankers reported increases.
Demand for loans and required collateral
Not only have loan renewals increased, overall loan demand edged up in
the third quarter. A quarter of district respondents indicted increased
demand compared with 18 percent that reported decreased loan demand. While
over half of Montana respondents indicated increased loan demand, only
9 percent on Minnesota lenders indicated an increase.
Meanwhile, collateral requirements are increasing at a few banks. Fourteen
percent said that collateral requirements increased, while the remaining
indicated no change in collateral requirements. However, a third of Montana
lenders reported increased collateral requirements.
Overall land prices continue to increase. The average nonirrigated farmland
price was $985 per acre during the third quarter of 2002, an increase
of 7 percent from the third quarter of 2001. Meanwhile, the average ranchland
price was $437 per acrean increase of 26 percent from a year ago.
Land prices varied significantly by state, as the average ranchland price
was $161 per acre in North Dakota compared with $871 per acre in Minnesota.
"Land values are influenced by housing sites in the country," wrote a Minnesota banker.