Farm lending at commercial banks and lending for livestock and current operating expenses soared in the fourth quarter, according to the latest Ag Finance Datebook publication authored by Jason Henderson and Maria Akers of the Federal Reserve Bank of Kansas City.
Henderson and Akers attribute the spike to escalating feed and livestock costs, high fuel costs during harvest, and rising fertilizer and seed costs. They say these rising costs are pushing producers to pre-pay for 2013 inputs, and obtain a non-real estate farm loan to do so.
Non-RE loans doubled year ago volumes, they say, and livestock loans for feeder animals is ahead of last year's totals as well.
Tax law uncertainty changes farm lending
Tax provisions allowing accelerated depreciation on qualifying farm asset purchases such as machinery, equipment, and special–use or single– purpose agribusiness buildings, including grain bins, drying systems, and livestock barns, were set to expire at the close of 2012, Henderson and Akers note.
Producers who took advantage of the incentives doubled the volume of farm machinery and equipment loans compared with last year. Intermediate-term loan volumes also increased.
Farmland still surging
High crop prices and insurance payments kept farm incomes steady and land prices high. Wind leases and irrigation systems added value to many tracts of land, Henderson and Akers note, pushing land values in the Dakotas, for example, to more than 30% above year ago levels.
Even with low soil moisture levels heading into 2013, very few bankers expected farmland values would retreat from their current highs, and most expected them to remain elevated in 2013, report authors say. With such a busy farmland market, commercial banks reported a surge in farm real estate loans.
Availability of funds for farm loans still high
Despite reports of record high farmland values, bankers still say overall farm lending varied with the severity of the drought – livestock-heavy states saw increased lending to cover high feed costs, while rising incomes in Minnesota and the West Coast boosted farm capital spending but decreased operating loan demand.
Dairy loans remained stable, while feeder cattle loan demand is expected to weaken, authors note.
Overall, loan renewals and extensions were low in most districts, and fewer bankers reported higher loan repayment rates in the quarter.
Click here to read the entire Ag Finance Databook entry.