The Kansas City Fed said last week that the outlook for agricultural credit conditions in its Tenth District improved in the third quarter, due in part to rising commodity prices and additional government aid to producers.
After dropping sharply in the second quarter due to COVID-19 disruptions, prices for most ag commodities began to rebound during the summer. The Fed report says increasing demand supported additional increases in crop prices through the third quarter and into October, expanding profit opportunities for many producers going into the harvest season. As a result, credit conditions deteriorated at a significantly slower pace.
The number of bankers reporting declines in farm income and loan repayment rates dropped from the prior quarter. About 55 percent of ag bankers in the district reported lower incomes than a year ago, compared with 75 percent in the second quarter of 2020. Recent developments are leading to more optimistic expectations through the end of the year. Following years of steady growth, demand for farm loans appeared to decrease.
About 25 percent of bankers reported that loan demand was lower than last year, the highest number since 2013. Loan repayment challenges are expected to ease across most types of farm operations in the district through the next three months.
Senate Ag Committee Member Debbie Stabenow is leading a group of 15 senators asking Ag Secretary Sonny Perdue to reverse a decision that excluded dairy farmers from getting coronavirus aid for losses from meat produced from breeding animals.
The Hagstrom Report says the senators point out that losses from meat produced from breeding animals were included in the first Coronavirus Food Assistance Program, but not in the second, which is known as CFAP 2. “This change will affect the livestock industry and will be particularly harmful to dairy farmers, who often operate at extremely tight margins,” the senators wrote in the letter. “The decision is even more troubling considering that USDA clearly has sufficient resources to cover these losses.”
Additionally, they say the move would avoid confusing farmers. “It will be less complicated for both USDA and livestock farmers to cover all livestock and avoid confusion about what animals are covered or excluded,” they add. The senators say dairy farmers were struggling with prolonged market uncertainty, unfair trade practices, and the Administration’s “chaotic trade policies” long before COVID-19 hit.
Considering the industry’s tight margins, the decision to exclude dairy farm losses related to meat production will be a significant blow.
The Kansas City Federal Reserve says a slower pace of farm financing activity continued in the third quarter of 2020. The total volume of non-real estate farm loans remained subdued amid ongoing weakness in the ag sector, thanks in part to developments regarding COVID-19.
The National Survey of Terms of Lending to Farmers says despite growing 15 percent from the previous year, total non-real-estate loan volumes in the third quarter of 2020 were below the 20-year trend for that period. Loans for operating expenses increased from last year but were still less than the previous three years. Loans to finance feeder livestock and farm machinery followed a similar trend, while the volume of loans for other livestock remained steady.
All other loans declined for the second straight year, further weighing down the overall loan volumes. The number of new loans originated to farmers also declined for nearly all loan types. The total quantity of loans issued to farmers decreased, driven by a 12 percent decline in the number of operating loans.
Similar to the prior quarter, government payments and lending programs may have offset both declines in farm revenues and financing needs of some farm borrowers in the third quarter.