Agricultural News
Volume of New Agriculture Loans Drop to 20 Year Record Low in the Fourth Quarter of 2016
Fri, 20 Jan 2017 18:11:59 CST
Farm lending activity at commercial banks slowed significantly in the fourth quarter as lenders and borrowers assessed economic prospects for 2017. Despite persistent increases in the level of outstanding farm debt and ongoing demand for loan renewals, new loan originations dropped sharply. Some of the reduced loan volume likely stemmed from lower costs of farm inputs. However, as the outlook for farm income generally has remained weak and farmland values have continued to decline, both lenders and borrowers may have been more apprehensive about adding new debt heading into 2017. (Ag Finance Databook, Federal Reserve Bank of Kansas City)
According to fourth quarter national farm loan data gathered by the Federal Reserve, the volume of new farm loans dropped sharply in 2016, by 40 percent, the largest year-over-year decline in 20 years. Lower prices for agricultural inputs may have contributed to the drop, in addition to lower commodity prices, curbing new farm loans due to a decline in expenses.
This reduction in loan volumes has occurred during a prolonged decline in overall farm revenue, as commodity prices continued to fall in 2016, building on the declines of previous years. A 30 percent year-over-year decline in feeder cattle are pointed to as the cause for the reduction in the livestock sector. Farm real estate values have also been curbed due to this prolonged financial stress in the farm sector.
Responding to these dynamics, lenders and borrowers alike have become increasingly cautious. Meanwhile, commercial banks have reacted by adjusting existing loan terms, while profit margins remain tight. If profit margins remain low through 2017, the pace of new debt will be a key indicator to monitor in assessing the severity of financial stress through the year.
To view the report by the Federal Reserve Bank of Kansas City's Ag Finance Databook, click here.
Source - Federal Reserve Bank of Kansas City
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