Contact: Rosie Cataldo 612-204-5261 Date: May 23, 2002 FOR IMMEDIATE RELEASE

Agricultural Financial Performance Weakens

MINNEAPOLIS—First quarter agricultural financial conditions deteriorated from the same quarter the previous year, according to the results of the Minneapolis Fed's March 2002 agricultural credit survey. Farm income fell, and producers reduced loan repayments and increased loan extensions. Overall farm household spending was mixed, but capital spending decreased. On the positive side, loan interest rates were lower and land prices continued to increase. Due to the continued drought, Montana lenders were the most pessimistic about the financial conditions of their agricultural producers.

Findings on farm income and spending:

• Farm income decreased across the district; Montana producers were hurt the worst, as 78 percent of respondents reported decreases in farm income.
• Sixty percent of South Dakota respondents and about half of Minnesota and North Dakota respondents reported decreases in farm income from a year earlier.
• The overwhelming majority of lenders in the Dakotas and Minnesota saw no change in household spending, but 56 percent of Montana lenders reported decreases from a year ago.
• About half of the respondents in Minnesota and North Dakota, and three of four in Montana, reported decreases in capital spending; about one-third of South Dakota lenders saw declines.

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

• Cropland prices increased over last winter's prices from an average of 1 percent in North Dakota to 7 percent in South Dakota.
• Pasture land price changes ranged from zero growth in North Dakota to 8 percent in South Dakota over those of a year ago.
• Forty-two percent of respondents indicated that loan demand increased from a year earlier compared to only 12 percent who saw decreased loan demand.
• Thirty-seven percent of lenders experienced a decrease in loan repayments and 9 percent reported increases.
• Interest rates for farm loans have decreased nearly 200 basis points from a year ago.

Bank credit conditions:

• One-third of respondents reported increases in loan renewals and extensions;
  6 percent reported a decrease.
• Three percent of lenders reported refusing to make a loan due to shortage of funds.

Outlook

Lenders are pessimistic about the future of their farm customers. “Difficult times are ahead, as few crop-only farmers are able to show projected profitability with average yields,” commented a Minnesota banker. About half the respondents expect farm income to be down over the next three months, and the remainder expect stable farm income.

Forty-two percent of lenders expect capital spending to decrease, and 53 percent expect it to stay the same in the second quarter. Only 2 percent expect increases in loan repayments. A small piece of optimism resides in land prices, where 25 percent expect continued increases and only 4 percent expect decreases.

The Federal Reserve Bank of Minneapolis' quarterly survey of 89 agricultural bankers in the Ninth Federal Reserve District included Montana, North and South Dakota, northwestern Wisconsin and Minnesota. The Upper Peninsula of Michigan is not part of the survey.

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 the Minneapolis Fed serves as a member of the Federal Open Market Committee, the monetary policymaking arm of the Federal Reserve’s Board of Governors.

Note: To be more consistent with other Federal Reserve districts, the Federal Reserve Bank of Minneapolis changed the timing of this and future surveys as well as the survey questions from mid-quarter to end of quarter reporting. Most questions were reworded; several were removed, including questions on detailed loan demand; and additional questions on future land prices were added. This survey occurred before passage of the farm bill.

State Fact Sheet: Agricultural Credit Conditions Survey