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Agricultural News

Fed's Ag Finance Databook Report Shows Farm Lending Continues to Moderate in 2017

Fri, 21 Apr 2017 16:28:15 CDT

Fed's Ag Finance Databook Report Shows Farm Lending Continues to Moderate in 2017 Lending activity at agricultural banks continued to decline in the first quarter of 2017, according to the Federal Reserveís Agricultural Finance Databook. As economic conditions in the farm sector have remained weak, borrowers and lenders have sought to make some adjustments in financing agricultural production. Some borrowers have looked to reduce spending on farm inputs in response to persistently low profit margins. Agricultural lenders have also sought to accommodate farm borrowers by extending loan maturities when possible, despite having increased interest rates slightly to compensate for additional risk.

Farm lending at commercial banks continued to moderate in early 2017. The volume of non-real estate farm loans originated in the first quarter declined 16 percent from the previous year, according to the Survey of Terms of Bank Lending to Farmers. The decrease in the first quarter was the sixth consecutive year-over-year decline in the volume of new non-real estate farm loans and followed a significant drop in the fourth quarter of 2016.

Persistent declines in farm income have remained a primary driver of reduced lending in the farm sector. Revenue from the production of most agricultural commodities is expected to decline again in 2017.

As farm income and farm finances generally have continued to tighten, agricultural lenders have made more adjustments to loan terms in recognition of the heightened risk. In the first quarter, the average interest rate of all agricultural loans increased 27 basis points from the previous year and fewer loans were extended with interest rates of less than 3 percent.

Farm lending at commercial banks has declined significantly for two consecutive quarters, indicating that some adjustments are being made in an environment of persistent weakness in the farm economy. In the 1980s, the accumulation of debt during the early years of the downturn in the farm economy contributed significantly to the crisis that developed later. Although the current downturn has persisted for several years and could still intensify, the adjustments being made could also place the farm sector in a more stable longer-term position.

To review the complete Databook report, click here.

Source - Federal Reserve Bank of Kansas City



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