Editor's note: To be more consistent with other Federal Reserve
districts, the Federal Reserve Bank of Minneapolis changed the timing
of this and future surveys and the survey questions from mid-quarter
to end of quarter. 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.
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 household
spending was mixed, but capital spending decreased. On the positive side,
loan interest rates are down, while land prices continued to increase.
Due to the continued drought, Montana lenders were the most pessimistic
about the financial conditions of their agricultural producers.
Farm income and spending
Farm income decreased across the district. "Our customers lost many
dollars last year," reported a Minnesota lender. Montana producers
were hurt the worst, as 78 percent of respondents reported decreases in
farm income. "Severe drought for the last three to four years has
depleted inventory and cash reserves," said one Montana lender. Meanwhile,
60 percent of South Dakota respondents and about half of the Minnesota
and North Dakota respondents reported decreases in farm income from a
Overall farm household spending was mixed. 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.
Capital spending dropped across the district. About half of the respondents
in Minnesota and North Dakota, and three of four in Montana, reported
decreases in capital spending. South Dakota lenders were more upbeat about
capital spending, as only 30 percent saw declines and 15 percent saw increases.
"Tax incentives may result in farmers taking advantage to go ahead
with capital spending," reported a South Dakota banker.
Land values, collateral
Land prices in the district continue to increase. "Very willing
buyers, both local and out of the area, for any real estate offered for
sale," wrote a South Dakota banker. Cropland prices increased over
last winter's prices from an average of 1 percent in North Dakota to 7
percent in South Dakota. In addition, pasture land price changes ranged
from zero growth in North Dakota to 8 percent in South Dakota over those
of a year ago. Collateral levels remained stable, as 80 percent of lenders
reported no change in levels of required collateral.
Farm loan demand, bank credit conditions and liquidity
Interest rates for farm loans have decreased nearly 200 basis points
from a year ago, which appears to be driving increased demand for loans
with spring planting around the corner. Forty-two percent of respondents
indicated that loan demand increased from a year earlier compared to only
12 percent who saw decreased loan demand.
Bank credit conditions deteriorated slightly and liquidity remain normal.
Thirty-seven percent of lenders experienced a decrease in loan repayments,
while only 9 percent reported increases. In addition, a third of respondents
reported increases in loan renewals and extensions compared with only
a 6 percent decrease. Availability of funds was not a problem: Only 3
percent of lenders reported refusing to make a loan due to shortage of
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 expects stable farm income. The great majority
of lenders also expect capital spending to either decrease (42 percent)
or stay the same (53 percent) in the second quarter. Only two percent
expect increases in loan repayments. The only small piece of optimism
from the survey was in land prices, where 25 percent expect continued
increases and only 4 percent expect decreases.
|Fixed Interest Rates*
|1st Q '01
|2nd Q '01
|3rd Q '01
4th Q '01
1st Q '02
|* Average of
reported rates in mid-November 2002.
Each quarter, the Federal Reserve Bank of Minneapolis
surveys agricultural bankers in the Ninth Federal Reserve District, which
includes Montana, North Dakota, South Dakota, Minnesota, northwestern
Wisconsin and the Upper Peninsula of Michigan. In March, 89 bankers responded
regarding conditions during the first quarter 2002.