Credit conditions remained strong in the second quarter of 2014, according to agricultural bankers in the Tenth District of the Federal Reserve, but lower farm income as a result of lower crop prices could put pressure on credit quality going forward.
Nearly 220 ag bankers from Colorado, Kansas, Nebraska, Oklahoma, Wyoming, New Mexico and Missouri responded to the Federal Reserve’s Second Quarter Survey of Agricultural Credit Conditions. According to the survey, bankers reported very few past due farm loans in the second quarter, and they do not anticipate significant loan repayment problems this year.
The decline in loan repayment rates were in states heavily dependent on crop production, particularly Nebraska, according to the survey. In contest, improved profitability in the beef cattle industry led to strengthened loan repayment rates in Oklahoma in the second quarter, according to the survey.
Cropland values were generally steady, according to the survey. Despite being 6 percent above year-ago levels, irrigated and non-irrigated cropland values only increased 1 percent from the first to second quarters of 2014.
Ranchland value, conversely, continued rising supported by demand for high-quality pastures to graze livestock. According to the survey, ranchland values increased more than 2 percent from the first to the second quarter of 2014 and were more than 9 percent higher than levels at this time last year.
Bankers responding to the survey anticipate current trends in farmland and ranchland values to continue for the rest of the growing season.
Looking forward, some bankers responding to the survey said while “past profits and crop insurance may help mitigate shrinking margins in 2014, financial stress for crop producers could mount in 2015 in net returns do not improve.”
The bankers also said a large fall harvest could keep prices low through the beginning of next year, resulting in lower crop insurance revenue protection in 2015. They said loan quality may become more of a concern in the future if declining profit margins put additional pressure on repayment rates.
“With grain prices continuing to decline there is sure to be some decline in credit quality,” said one Central Nebraska banker.
To read more from the survey, click here.