Farm income and credit conditions in the Tenth Federal Reserve District tightened in the first quarter of 2024. According to the Survey of Agricultural Credit Conditions, farm incomes retracted at a sharp pace, farm loan repayment rates declined at a modest pace and loan demand rose notably.
Conditions tightened comparatively more in states with greater reliance on crop revenues and less in more cattle heavy areas. As lenders entered the renewal period for annual operating lines, loan denials were limited but many reported an uptick in carryover debt and loan restructuring to meet liquidity needs.
Conditions in the U.S. farm economy have tightened alongside lower prices for many key products and higher financing costs. Many lenders highlighted growing concerns about deterioration in working capital as a result of low prices, particularly for crop producers. Strength in cattle prices, however, has supported incomes for many cow/calf producers.
A larger share of banks also reported higher loan demand following multiple years of subdued credit utilization, a sign that strength in farm finances built up in recent years has moderated. A continuation of subdued crop prices throughout 2024 would likely drive further tightening in agricultural credit conditions and elevated interest expenses could put additional pressure on farm borrowers. Farm income and credit conditions The pace of decline in farm income in the Tenth District continued to accelerate in the early months of 2024. The share of lenders reporting that farm income was less than a year ago reached 60%, the highest since early 2020.
The pace of decline in farm income was notably faster in states with more reliance on crop revenues. More than 70% of lenders reported lower farm income than a year ago in Kansas, Missouri and Nebraska, states with higher share of revenue from crop production. In the other Tenth District states where cattle account for higher shares of revenue, less than a third of banks responded that incomes were down from a year ago.
Capital spending slowed at a modest pace alongside lower incomes, but growth in household spending held firm. Capital spending by farm borrowers decreased at a gradually faster pace in the first quarter, typical during periods of lower farm income. Household spending, however, continued to rise at a steady pace alongside broad inflationary pressure.
Other key measures of agricultural credit conditions showed signs of modest deterioration. Farm loan repayments rates declined in the Tenth District at the fastest pace since early 2020. At the same time, renewals and extensions increased at the fastest pace since 2020 and collateral requirements tightened at a modest pace.
Instances of carryover debt rose slightly alongside thinner profit margins during the past year. About 15% of farm borrowers, on average, had an increase in the amount of debt not covered by profits compared with the same time a year ago. Instances of carryover debt grew in all states in the region, but were particularly pronounced in Missouri.
Cases of restructuring to meet liquidity needs were also higher, but loan denials remained limited for most lenders. About 5% of farm loans in the Tenth District, on average, involved restructuring to meet liquidity needs which was slightly higher than previous years but well below the levels of 2016-2020. Loan denials remained minimal, staying below 2% on average throughout the region. Interest rates and farmland values While credit conditions softened and loan demand picked up, farm loan interest rates remained slightly above historical averages. Alongside relatively steady benchmark interest rates, average rates on all types of farm loans were largely unchanged from the previous quarter. Interest charges on agricultural loans remained slightly above the 30-year average, however, keeping financing costs elevated for agricultural producers reliant on financing.
Despite broad moderation in the farm economy and higher interest rates, growth in farmland values remained firm. The value of all types of farmland, on average, grew by 5% or more from a year ago throughout the Tenth District. Following tepid growth throughout 2023, cash rents on all types of land rose modestly in the first quarter.
Banker comments Q1 2024 “In our area, lower commodity prices are being partially offset by higher beef prices and more accommodating weather conditions for winter wheat.” – Northwest Oklahoma “Farm income in our area is up due to cattle prices, but increased costs for stockers presents concern going forward.” – Southern Oklahoma “Lower grain prices are causing cash flow shortages.” – Western Oklahoma Respondents A total of 129 banks responded to the First Quarter Survey of agricultural credit conditions in the Tenth Federal Reserve District, an area that includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri.