Contact: Media Representative 612-204-5261 Date: September 13, 1999 FOR IMMEDIATE RELEASE

Minneapolis Fed Ag Survey Finds
Upper Midwest Farm Economy Forecast Dismal

MINNEAPOLIS—Farmers' financial condition further deteriorated in the third quarter, compared to the dismal performance in the second quarter, according to an August survey of 103 agricultural bankers by the Federal Reserve Bank of Minneapolis. Nearly all bankers surveyed describe farm income and capital spending as below normal levels.

"Farm income and capital spending continue to slide, while loan renewals or extensions remain above normal levels. Lenders are requiring more collateral for their farm customers and loan repayments have slowed, while interest rates increased slightly," says Minneapolis Fed regional economist Tobias Madden.

Findings on capital spending and farm income:

• Capital spending is almost nonexistent, with 90 percent of bankers viewing it as below normal levels.

• Farm household spending is drastically reduced, with 59 percent of bankers surveyed placing it below usual levels.

• Montana and North Dakota farmers are having the harshest problems, with 100 percent and 95 percent of lenders, respectively, reporting below-normal farm income.

Findings on farm loan volumes, interest rates and land prices:

• As farmers reduce capital and household spending, requests for loans decrease. Operating loan volume, except for feeder loans, decreased as 14 percent of bankers report loans at below usual levels in the third quarter, a 4-point increase from the second quarter.

• Over half the bankers reported lower than normal levels of real estate loans in the third quarter, while 75 percent of the bankers said machinery loans continue to slide.

• Farmers are facing slightly higher interest rates compared to last quarter, but the rates remain near their lowest levels in more than four years.

• Land prices are up from 1 percent to 15 percent in Wisconsin, Montana and North and South Dakota, while Minnesota lenders report cropland prices down 2 percent from a year ago.

Outlook:

• The outlook for the financial condition of farmers for the next three months is depressing. Eighty-nine percent of lenders expect farmers to have below-average net income. Ninety-two percent expect below-normal capital levels and three quarters of the lenders predict that the rate of loan repayments will be below normal.

The Federal Reserve Bank of Minneapolis quarterly survey of 103 agricultural bankers in the Ninth Federal Reserve District included Montana, North and South Dakota and Minnesota. The Upper Peninsula of Michigan is not part of the survey. (see appendix and complete results).

As one of the 12 Federal Reserve Banks, the Federal Reserve Bank of Minneapolis contributes to a variety of Federal Reserve System functions, including operation of a nationwide payments system, distribution of the nation’s currency and coin, supervision and regulation of member banks and bank holding companies, and serving as a fiscal agent for the U.S. Treasury. Additionally, the president of Minneapolis Fed serves as a member of the Federal Open Market Committee, the monetary policymaking arm of the Federal Reserve’s Board of Governors. Together with its branch in Helena, Mont., the Minneapolis Fed serves the Ninth Federal Reserve District, which includes Minnesota, Montana, North and South Dakota, 26 counties in northwestern Wisconsin and the Upper Peninsula of Michigan.

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