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High Prices Prompt Strong Ag Conditions

Minneapolis, May 13, 2004

High Prices Prompt Strong Ag Conditions
Agricultural financial conditions were very strong during the first quarter, especially for soybean and dairy producers and North Dakota farmers overall, according to the Federal Reserve Bank of Minneapolis' first-quarter agricultural credit conditions survey of lenders. Most indicators for growth in the agricultural sector improved, including loan repayment and farm income. Prices for many district agricultural products increased in the first quarter, highlighted by record milk prices and soybean prices of over $10 per bushel, leading some farmers to plant more soybean acres and dairy producers to expand. Lenders expect an increase in farm income and a growing demand for loans in the second quarter. However, drought remains a concern across most of the district.

Farm income, farm household spending and capital investment

  • An increase in farm income during the first quarter was reported by 68 percent of respondents, while 25 percent reported no change. Only 7 percent said income levels were below normal.
  • Household spending remained strong: 43 percent of lenders said household spending increased, and half said it remained level.
  • Capital spending increased: Nearly 60 percent of lenders whose major customers produce dairy products reported higher-than-average capital spending.

Loan repayments and renewals

  • Increased profits led agricultural producers to pay back loans and reduce their need to extend loans. A third of lenders noted an increased rate of loan repayment, while only 5 percent reported a decrease. Nearly a quarter of surveyed bankers indicated lower demands for loan renewals or extensions, and two-thirds reported no change.

Demand for loans, required collateral and interest rates

  • Loan demand was steady through the first quarter as 61 percent of lenders reported no change, 21 percent indicated lower demand and 18 percent, an increase.
  • Collateral requirements were also steady; only 5 percent of lenders revealed an increase and none reported a decrease.
  • Interest rates were mixed during the first quarter. Rates for all types of fixed-rate loans dropped about 10 basis points from the fourth quarter. However, rates for variable-rate loans increased about 20 basis points. All lenders indicated sufficient availability of funds to lend.

Land values

Rising profits have pushed land values higher. Respondents revealed that nonirrigated farm land and ranchland values increased from a year ago by an average of 15 percent and 14 percent, respectively. South Dakota lenders reported that farmland values increased by 21 percent from a year ago. In Minnesota, lenders saw an average increase in farmland values of 17 percent.


Most lenders expect farm income and capital spending to increase in the second quarter. However, some lenders expressed concerns about the continuing drought, higher input costs and over-valued land prices.

The Federal Reserve Bank of Minneapolis' quarterly survey included 130 agricultural bankers in Montana, North and South Dakota, northwestern Wisconsin and Minnesota. The Upper Peninsula of Michigan is not part of the survey. See complete results.

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.