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Agricultural News


As Rates Tick Up, Growth in Operating Loans Boosts Farm Lending - According to Federal Reserve

Fri, 18 Jan 2019 10:45:44 CST

As Rates Tick Up, Growth in Operating Loans Boosts Farm Lending - According to Federal Reserve The volume of non-real estate farm debt continued to increase in the fourth quarter of 2018, according to the Federal Reserve’s Agricultural Finance Databook. Total non-real estate farm loans were up nearly 8 percent from a year ago, which was the seventh consecutive quarter of annual growth in loan volumes.



The increase in farm financing continued to be driven by lending to fund current operating expenses. The volume of operating loans reached a historical high for the fourth quarter, increasing more than $10 billion, or 22 percent year over year.



Alongside an expansion in the overall volume of non-real estate farm lending, the size of individual loans also continued to grow. Adjusting for inflation, the average size of non-real estate loans reached the highest fourth quarter level in 2014, and the average size of loans to fund current operating expenses grew to the largest on record.



Rounding out a year characterized by lower farm incomes, uncertainties about agricultural trade and the growth of lending volumes, interest rates on agricultural loans trended higher. The combination of increased lending needs and higher interest rates has continued to raise the cost of financing at a modest pace. For a mid-sized Midwest farm operation that has not increased its financing needs in recent years, annual interest expenses have increased just about $3 an acre. However, for operations that have required a moderate amount (10 percent per year) of additional financing, annual interest expenses have increased about $10 an acre. In the current price environment, this increase in annual interest expense would equate to about three bushels of corn an acre, a modest but nontrivial amount of production.



Despite mounting pressure on the farm sector and limited profit opportunities, the value of farm real estate has continued to provide ongoing support and remains a key area to monitor in the coming months if leverage continues to increase.



Read more by clicking here.



Source - Federal Reserve Bank of Kansas City




   

 

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