A slowdown in lending for capital purchases is contributed to lower farm loan volumes in the fourth quarter, according to the Kansas City Federal Reserve's Agricultural Finance Databook for January.
Nathan Kauffman, Omaha branch executive and Maria Akers, associate economist, write in the update that loan volume for farm machinery has dropped to the lowest level in more than two years, despite attractive loan terms and low interest rates.
Short-term loans were also down in the fourth quarter, Akers and Kauffman note, largely because of elevated farm income and a decline in input costs.
"A rebound in crop production in most regions helped offset a sharp drop in corn prices at harvest, keeping farm income relatively high," they write. "In turn, lower corn prices reduced feed costs for livestock operators. Crop farmers also saw operating costs decline due, in part, to a decrease in fertilizer prices."
With fewer operating loans being made, large lenders in particular competed for market share by offering further reductions in interest rates, they said.
Specifically, the November survey data indicated fourth-quarter operating loan volumes fell 10% short of last year’s levels, feeder livestock loans were 17% lower, and other loans for non-specified purposes plummeted by 45%. The only loan category experiencing an increase in volume was for livestock other than feeder animals, which includes poultry purchases.
Farm real estate lending also eased in the fourth quarter, even as farmland values were still rising. Despite the decline, most bankers in a November survey indicated that they expect farmland values to hold steady at high levels into 2014.
Overall, delinquency rates on both farm real estate and non-real estate loans continued to trend down as bankers reported relatively high loan repayment rates, they note.
Click here to read the full Agricultural Finance Databook.