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K.C. Fed report: Volume of new ag loans drops

A new report from the Federal Reserve Bank of Kansas City—the Fed’s Tenth District—says farm lending activity at commercial banks slowed significantly in the fourth quarter as lenders and borrowers assessed economic prospects for 2017.

According to the Federal Reserve’s Agricultural Finance Databook, new loan originations dropped sharply, despite persistent increases in the level of outstanding farm debt and ongoing demand for loan renewals. Officials say 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, they say both lenders and borrowers may have been more apprehensive about adding new debt heading into 2017.

“A gradual increase in the level of financial stress in the farm sector has caused agricultural lenders and borrowers to become increasingly cautious,” the report says. “Although declines in the cost of some key inputs have provided modest relief, profit margins have remained low and new farm loan originations dropped sharply in the fourth quarter.

“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,” the report concludes.

The Fed’s Tenth District consists of Nebraska, Kansas, Oklahoma, Colorado, Wyoming, the northern part of New Mexico and the western part of Missouri.