Short-Term Financing Needs Still Rising According to Federal Reserve Bank of Kansas CityTue, 27 Oct 2015 11:44:10 CDT
Reduced farm income continued to drive demand for short-term financing to cover operating costs according to the Federal Reserve Systemís Agricultural Finance Databook.
Both the number and volume of operating loans originated increased in the third quarter of 2015. The largest increase in demand was for operating loans of more than $100,000.
Large, ongoing increases in operating loan volumes have raised concerns about liquidity in the farm sector. The increase in operating loan volumes the past two years has coincided with a period of declining farm incomes. In 2015, the ratio of operating loan volumes to U.S. net farm income has reached a level last seen in the mid-1980s. This suggests that the farm sector is more exposed to short-term debt obligations and cash flow difficulties than in recent years.
Increased farm sector lending has boosted loan-to-deposit ratios for agricultural banks, and profitability has remained strong. Yet, increased debt leverage and reduced liquidity have continued to intensify concerns about future financial stress for some agricultural producers.
The Agricultural Finance Databook is a quarterly compilation of national and regional agricultural finance data. The complete release is available by clicking here.
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