Contact: Rosie Cataldo 612-204-5261 Date: March 12, 2003 FOR IMMEDIATE RELEASE

Ag Lenders Report Diverse District Conditions

MINNEAPOLIS, March 12, 2003—Agricultural financial conditions were on the upswing in Minnesota and the eastern Dakotas, but poor in Montana and the western Dakotas, according to the Minneapolis Fed's fourth-quarter agricultural credit conditions survey. “Excellent crop in the area, due to timely, but not overabundant moisture supply. With good crop pricing opportunities, we have good farm income and few repayment issues on crop producers,” wrote a Minnesota banker. This remark describes the farm conditions in Minnesota, eastern South Dakota and eastern North Dakota. Conversely, a lender from western South Dakota noted that, “this area has experienced a drought and a lot of our ranchers have sold off breeding herds,” reflecting the agricultural situation in Montana and western Dakotas.

Farm income; household and capital spending

• 86 percent of bankers in Montana and 61 percent of bankers in South Dakota reported decreased agricultural income.
  
• Nearly half of the respondents indicated a decrease in farm income in the fourth quarter; 30 percent noted an increase.
  
• Overall household spending remained relatively balanced; 17 percent reported higher household spending; 57 percent stated no change; 26 percent indicated decreases.
  
• The fall in capital spending was severe: 46 percent of lenders overall reported decreased levels, with
  a low of 19 percent of Minnesota respondents and a high of 61 percent of South Dakota bankers.

Loan repayments and renewals

• 16 percent of lenders reported increases in the rate of loan repayment; 27 percent noted decreases.
  
• 30 percent of all respondents indicated increases in loan renewals or extensions; 13 percent reported decreases.
  
• District respondents stated that about a quarter of their farm and ranch customers are at their loan limit.

Land values

• District farmland and ranchland prices increased an average of 13 percent and 9 percent respectively, from a year ago.
  
• Average farmland price increases varied across the district from a 7 percent increase in Montana, to an 18 percent increase in western Wisconsin.

Demand for loans and required collateral

• The number of respondents who indicated increased loan demand about equaled the number reporting decreased demand.
  
• Only 8 percent of Minnesota respondents noted increased loan demand compared with 57 percent in Montana.
  
• One out of five respondents said that collateral requirements increased; the remaining indicated no change.
  
• 71 percent of Montana lenders reported increased collateral requirements.

Outlook

Agricultural income is expected to decrease in the first quarter of 2003 for all district states except for Minnesota, where it is expected to be level. Across the district, 44 percent of respondents anticipate lower income, while only 16 percent expect higher income. In Montana, 57 percent of respondents forecast decreased income. “Severe drought in local areas has forced borrowers to either purchase feed and/or sell down livestock. Reduction in livestock numbers will adversely impact next years cash flows,” reported a Montana lender. In Minnesota, 22 percent foresee increases in farm income and 22 percent expect decreases in farm income.

This expected reduction in income affects other areas. Forty-six percent of district respondents anticipate decreased levels of capital spending and only 14 percent predict enhanced spending. In addition, loan demand, renewals and extensions are expected to increase in the first quarter of 2003. “Most borrowers will not be able to make scheduled payments, some not even able to pay back operating loans. This is also affecting 100 percent of main street businesses as we are totally ag dependent,” commented a western North Dakota banker.

The Federal Reserve Bank of Minneapolis' quarterly survey of 106 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.

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