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 aptly describes farm conditions
in Minnesota and the eastern parts of South Dakota and 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 situation in Montana and western Dakotas.
While farm income varied across the district, effects of drought were
apparent in some survey responses. Bankers were especially negative in
Montana and South Dakota: 86 percent and 61 percent, respectively, reported
decreased agricultural income. Crop yields and economic conditions
vary greatly, observed a South Dakota lender. Another South Dakota
lender commented that drought conditions from last summer and lack
of moisture this winter are having a negative impact.
About half the survey respondents reported a decrease in farm income in
the fourth quarter, while 30 percent noted an increase. Row-crop producers
in Minnesota and parts of the Dakotas enjoyed a good harvest and adequate
prices. As a result, 41 percent of Minnesota respondents reported above-average
income, while only 19 percent indicated a decrease. In North Dakota, responses
were more evenly distributed: 48 percent reported increased income, and
38 percent noted a decrease.
Farm household and capital spending
Household income and capital spending followed approximately the same
pattern as farm income. Overall household spending remained relatively
balanced, as 17 percent of overall respondents reported higher household
spending, 57 percent noted no change and 26 percent indicated a decrease.
However, 28 percent of South Dakota and 15 percent of Minnesota lenders
revealed lower household spending.
Meanwhile, the drop in capital spending was severe: 46 percent of lenders
overall indicated decreased levels, with a low of 19 percent of Minnesota
respondents and a high of 61 percent of South Dakota bankers. Spending
has been cut on both living and capital items, reported a South
Loan repayments, renewals and limits
The rate of loan repayments decreased, and loan renewals or extensions
increased. The 16 percent of lenders who reported increases in the rate
of loan repayment were more than offset by the 27 percent who noted decreases.
Minnesota agricultural lenders were the most upbeat, with 30 percent indicating
higher rates of loan repayment; only 11 percent reported slower rates
of repayment. However, in Montana 57 percent reported slower loan repayments
vs. 14 percent at increased repayment rates.
At the same time, 30 percent of all respondents noted increases in loan
renewals or extensions and 13 percent decreases. Again, Minnesota lenders
were the most positive, with only 7 percent reporting higher renewal amounts,
while 57 percent of Montana lenders observed more farmers and ranchers
renewing and extending loans.
There is a limit to the amount that agricultural customers can borrow.
District respondents reported that about a quarter of their farm and ranch
customers were at their loan limitfrom a high of 38 percent in Montana
down to 20 percent in Minnesota.
Demand for loans and required collateral
Overall loan demand was level during the fourth quarter, but varied significantly
across the district. The number of respondents who indicated increased
loan demand about equaled the number reporting decreased demand. However,
only 8 percent of Minnesota respondents observed increased loan demand
compared with 57 percent in Montana. Meanwhile, collateral requirements increased at only a few of the responding
banks. One of five lenders said that collateral requirements increased,
while the remaining indicated no change in collateral requirements. However,
71 percent of Montana respondents reported increased collateral requirements.
Overall land prices continued to increase due to a variety of reasons.
Real estate values in some areas continue to rise due to good crop
yields, lower interest rates and expanding well capitalized operations,
wrote a banker from eastern South Dakota. 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. [Quantity of] nonproducing farmland being sold as recreational
land, and price is actually higher than production lands, commented
a western Wisconsin lender. A cautionary note: Real estate prices can
vary significantly, not only from state to state or county to county,
but even within a county.
Agricultural income is expected to decrease in the first quarter of
2003 for all district states except Minnesota, where it is projected to
be level. Across the district, 44 percent of respondents anticipate lower
income and 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.
This expected reduction in income affects other areas. Forty-six percent
of district respondents anticipate lower levels of capital spending and
only 14 percent predict increased 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.