Date: September 25, 2002 FOR IMMEDIATE RELEASE

Contacts: Media Representative 612-204-5261 Toby Madden 612-204-5372

Ag Lenders Report Less Than Rosy Outlook

MINNEAPOLIS—Farmers confronted increasingly tough financial conditions in the second quarter of 2002, resulting from a ruthless summer drought or excessive rain, according to the Minneapolis Fed's, agricultural credit conditions survey. The majority of surveyed lenders reported that the overall income of their farm customers continued to fall. Although household spending remained level, capital purchases decreased. Given that 53 percent of surveyed bankers predict their customers' incomes to fall further, the worst may not be over yet.

Farm income

• 58 percent of respondents reported a decrease in customers' farm income, while only 2 percent noted an increase.

• In Minnesota, 49 percent saw lower incomes; in North Dakota, 54 percent; in Montana, 56 percent; and in South Dakota, 68 percent.

Farm household and capital spending

• 19 percent noted a decrease in agricultural household spending, with 68 percent reporting no change.

• Nearly half of all respondents saw a lower level of capital spending. About 5 percent reported an increase.

Land values

• Average irrigated and nonirrigated farmland values increased 5 percent and 8 percent, respectively, from a year ago.

• Ranchland prices increased an average of 12 percent from the second quarter of 2001.

Demand for loans and required collateral

• Nearly one-third of the surveyed banks reported an increase in loan demand; 15 percent registered a decrease.

• 22 percent of surveyed banks reported higher levels of collateral required for new loans. For all others, collateral levels remained constant.

Loan repayments and renewals

• One-third of those surveyed reported a decrease in the rate of loan repayments; 4 percent reported an increase.

• 38 percent detailed an increase in renewals or extensions; 2 percent experienced a decrease in loan renewals.

Outlook
The extent of government payments remains to be seen. Overall, lenders seem pessimistic about the next three months for their farming clients. Though 10 percent expect farm income to rise next quarter, over half of the respondents expect it to fall. Most, 71 percent, foresee unchanged levels of household spending, but 52 percent predict a decrease in capital equipment purchases.

The Federal Reserve Bank of Minneapolis' quarterly survey of 113 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.

State Fact Sheet: Agricultural Credit Conditions Survey