KANSAS CITY, Mo. — An annual banker survey for the first quarter of 2021 Tenth District Federal Reserve District, based in Kanas City, Mo., indicates farm credit conditions strengthening.
Conditions rebounded at the end of 2020, and are continuing to improve “alongside” additional crop price increases, the bank said in a report released on May 13, 2021, with information from economists Cortney Cowley, regional research at Oklahoma City, and Ty Kreitman, in Kansas City.
The survey doesn’t include the Ninth District, based at the Federal Reserve bank of Minneapolis, which includes Minnesota, Montana, North Dakota and South Dakota. That district issued a separate report on May 12, 2021. General, underlying cropland conditions widespread drought threats are analogous for the two regions.
“Stronger profit potential for farm borrowers supported a second consecutive quarter of significant increases in farm income, loan repayment rates and farmland values,” Cowley and Kreitman wrote.
The district includes Nebraska, Kansas, Oklahoma, Wyoming and Colorado as well as northern New Mexico and western Missouri .
Among other things:
Loan repayment — The rate of loan repayment was 40% above average, led by Nebraska, at about 50% saying loan repayment percentages increase. Loan repayment percentages were the highest since 2012, when farmers received high corn and commodity prices after a drought.
Loan demand — Loan demand was “soft” but Nebraska and Kansas reported a modest decrease in loan demand. The percentage of bankers reporting lower demand rate was 40% in both states, compared to a five-year average of 10% for the first quarter..
Income —Two-thirds of bankers throughout the region reported farm income higher than a year ago, the highest share since 2011.
Spending —Bankers say borrower spending “increased at a rapid pace” in the quarter. Farmers spent more on capital goods and households than any time since 2012. And it was the “first time in eight years that both measures increased in the same quarter.” ‘The trend was expected to continue in the coming months,” the report said.
Financial condition — An average of 75% of bankers in the district indicated “significant improvement” in financial conditions for farm borrowers. Kansas and Nebraska showed 80% to 90% improvement.
Restructuring/Debt — Fewer had to restructure to meet liquidity needs, a figure that went down 2020 and the prior four years during the quarter. Bankers reported fewer borrowers had an increase in carryover debt. Lenders reported only 2% of loan requests were denied because of cash flow shortages — “a stark contrast to the prior five years.”
Farmland values — Interest rates on farm loans fell “further to historically low levels.” Rates have fallen 1.5 percentage points since the first quarter of 2019. Lower rates have reduced bank earnings. Real estate values increased 8% during the first quarter “the largest annual increase for the first quarter since 2013,” while ranchland values rose “at the fastest pace since 2015.” Non-irrigated cropland values rose at least 8% in Kansas, Missouri and Nebraska.
Among the comments from bankers in different areas of the Tenth District:
- “Government payments and PPP made all of the difference in averting a deterioration of credit due to a combination of drought and disruptions from the pandemic,” — southeast Colorado.
- “It’s a confusing time,” said a banker in southwest Kansas. “Drought impacted a large area, however CFAP and various government program payments made a huge impact by year-end and the increased commodity prices have lifted spirits. Many producers have started selling commodities at very profitable levels and most cash flows show a marked improvement.”
- Row crop farmers are flush with cash from profits and government payments on top of that, but ranchers are the entities that are still struggling,” — Central Nebraska.