Lower expected land values, increased anticipated interest rates and an expected increase in non-performing loans has agricultural lenders less optimistic than they were last fall according to the Spring 2014 Agricultural Lender Survey conducted by the Kansas State University Department of Agricultural Economics.
The semi-annual, nationwide survey of lending institutions specialized in agriculture gauges short- and long-term expectations of various aspects of the future lending environment. The most recent survey focused on the following areas: farm loan interest rates; spread over cost of funds; farm loan volumes; non-performing loan volumes; and farm land values. Within each area, different loan types were assessed and responses were categorized by agricultural sector (corn and soybeans, wheat, beef, dairy, etc.). Total agricultural loan volume of all respondents was estimated at $144 billion.
Survey respondents indicated that loan interest rates increased slightly for farm real estate loans but decreased slightly for farm operating loans. Looking ahead, in the short- and long-term it is anticipated that interest rates for all agricultural loans will increase.
As expected, farm loan volume increased over the past three months, and survey respondents said they expect all farm loan categories to increase in volume in the short- and long-term. Operating loan volume, according to the survey, has remained steady in the last quarter but is expected to increase in the future. One respondent said, “The short-term prospects for new loans and non-performing loans are being influenced by the drop in corn prices. However, this has been good for livestock and ethanol production…”
With regard to non-performing loans, all categories of non-performing loans have decreased in the past three months, but survey respondents said they expect these will begin to increase in the next year. In fact, over 40 percent more of survey respondents said they think non-performing loans will increase in the long-term than those who think they will go down. Specifically, an increase in non-performing loans for corn and soybeans and wheat are expected in the short-term, and in the long-term, respondents expect an increase in non-performing cotton loans. It is expected that non-performing loans in the beef, dairy and poultry sectors will continue to decrease over the next year.
Respondents said land prices increased in the past three months, but expectations for the short- and long-term are form prices to decrease. Nearly 60 percent of respondents said they anticipate land values to decrease in the next two to five years. One respondent said while land prices are down, cash rents have remained high this year. Other respondents said the ongoing drought is putting downward pressure on land prices.