The agricultural lender sentiment for the end of 2014 shows that lenders have decreased expectations for the short- and long-term outlook. Respondents of a Kansas State University Agricultural Lender Survey expect farmland prices to decline and non-performing loans to increase.
The five areas surveyed include farm loan interest rates, spread over cost of funds, farm loan volumes, non-performing loans and farmland values. Brady Brewer, agricultural economics doctoral candidate, outlined the major themes and implications for the agricultural sector that were found.
“One of these themes is the continued expectations that farmland values will decrease; growing sentiment that farmland values will decrease in the short- and long-term,” Brewer said. “Additionally, only 2 percent more respondents indicated that land values in their service territory increased during the last quarter, indicating that values have already stagnated.”
Brewer pointed out that lenders expect interest rates to increase in the short- and long-term. Rising loan interest rates was expected on all loan types considered, operating, intermediate, and farm real estate.
“However, more lenders felt these increases would occur in two to five years instead of the coming year,” added Brian Briggeman, associate professor and director of the Arthur Capper Cooperative Center.
Another theme Brewer discovered is that while the long-term expectation for non-performing loans saw little change from the spring 2014 survey to the fall 2014 survey, more lenders expect non-performing loans to rise in the short term. Potentially, lenders are expecting tighter profit margins to strain loan repayment rates sooner than previously expected. However, it is important to recognize that non-performing loans are currently at a historically low level.
“The financial health of the livestock and crop sectors appears to be headed in different directions,” said Brewer. With lower commodity prices and higher farmland values, lenders expect non-performing loans to increase in the short- and long-term for crop sectors, while the livestock sectors, bolstered by high market prices and lower feed costs, are expected to see a decrease in non-performing loans.
“As with the spring 2014 survey, lenders continue to express less optimism than they did during 2013,” said Christine Wilson, professor and assistant dean of academic programs, for K-State’s College of Agriculture. “They continue to expect interest rates to increase, non-performing loans to increase, and farmland values to decrease. They do however also still expect farm loan volume to remain strong.”
The research and series of surveys was developed by Brewer, Briggeman, Wilson, and Allen Featherstone, department head and professor of the K-State Department of Agricultural Economics. For more information about the outlook for agricultural credit conditions and commentary on areas of concern within agriculture, go to the K-State Agricultural Lender Survey.