Agricultural credit tightened during 1Q, Federal Reserve Bank says

Friday, May 15, 2009 | 2:25 p.m. CDT; updated 4:30 p.m. CDT, Friday, May 15, 2009

WICHITA — Agricultural credit conditions tightened in the Midwest during the first quarter of this year, The Federal Reserve Bank of Kansas City said Friday.

The Federal Reserve reported that its quarterly survey found that the percentage of lenders raising collateral requirements reached another record high in the Tenth Federal Reserve District. The rate of loan repayments also fell for the second straight quarter.

Turbulent agricultural conditions contributed to the tightened farm credit, the agency said.

The district includes parts of Missouri and New Mexico, in addition to the states of Colorado, Kansas, Nebraska, Oklahoma and Wyoming.

Lower farm incomes curbed the demand for farm loans across most of the district, making more money available for lending. Oklahoma was the only state in the region that did not experience a sharp drop in loan demand.

Bankers in Oklahoma reported the largest increase in the percentage of loans refused because of a shortage of funds, the report stated.

The increase in bank referrals to non-bank credit agencies or government lending programs across the region was also driven by Oklahoma, where bankers were concerned about drought stress on the winter wheat crop.

Those early fears over the crop appeared well-founded. The National Agricultural Statistics Service this week issued a winter wheat forecast saying Oklahoma's wheat crop was expected to be 52 percent smaller than last year's crop because of drought and spring freeze damage.

Survey respondents reported farm income had slipped from the record highs of last year, especially in Oklahoma and Kansas where winter wheat conditions deteriorated during the first quarter. Livestock producers also were struggling with low cattle and hog prices amid waning global demand for meat, the Federal Reserve said.

New equipment sales slowed dramatically in the district. The Association of Equipment manufacturers reported a 20 percent decline in tractor sales during the quarter when compared to last year's record high, according to the report.

Farmland values appeared to stabilize after modest declines in 2008, and most bankers expected those values to hold steady, the agency reported.

Non-irrigated farmland values rose 1.4 percent across the district compared to the previous quarter, with no change in the value of irrigated acreage. Ranchland values declined by less than 1 percent, reflecting the struggling livestock sector.

Nebraska had the most dramatic fluctuations in land values with the highest gains in 2008, but also the sharpest declines in the past two quarters.

The Federal Reserve's quarterly report was compiled from 255 lenders surveyed.


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