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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1883

December 1996

AgLetter
FARM DEBT EDGING UPWARD
Farm debt has been trending slowly upward so far in the
1990s, reversing a portion of the substantial contraction
that occurred during the latter half of the 1980s. The annual rate of increase moved up to about 3 percent in the
last two years and USDA analysts are projecting a comparable gain for 1996. Revised estimates show farm debt
approximated $150.8 billion at the end of 1995. That
marked an increase of less than 10 percent from the cyclical
low of $137.9 billion at the end of 1989 and was more than
20 percent below the 1984 peak of $193.8 billion. A little
over half ($79.3 billion) of the total was secured by farm
real estate. The remaining so-called nonreal estate farm
debt represents annual operating loans to farmers and
intermediate-term loans to finance such things as machinery and equipment.
Despite faster growth recently, the debt of the farm
sector appears to be well within traditional levels of “safety.”
Due to faster growth in asset values, the sector’s debt-toasset ratio continues to decline, falling to 15.4 percent at
the end of 1995 compared to 16.9 percent in 1989 and the
high of 23 percent during the troublesome times of the
mid 1980s. Similarly, the share of the sector’s gross earnings needed to service debt remains well below the levels
of the 1980s and in line with the standards of the 1960s
and early 1970s.

Farm debt, December 31, 1995
Amount,
billlion dollars

% secured by
real estate

As % of
farm assets

Banks

Illinois

8.1

58.0

12.5

49.9

Indiana

4.7

63.8

14.9

38.5

Iowa

10.9

56.6

18.4

47.8

Michigan

2.7

53.1

15.2

22.4

Wisconsin

5.2

49.6

19.8

41.6

District states

31.6

56.6

15.9

43.7

United States

150.8

52.6

15.4

39.8

*FCS = Farm Credit System; FSA = Farm Service Agency of the U.S. Dept. of Agriculture;
LIC = Life insurance companies and I&O = Individuals and others.
Source: U.S. Department of Agriculture.

Year-to-year changes in farm debt reflect numerous
variables that influence the demand for new loans, the
willingness of lenders to extend more credit, and the ability
of farmers to meet loan repayment schedules. Farm loan
demand strengthened in 1996 as more crop acreage, higher input prices (especially feed), increased purchases of
farm machinery, and higher farm real estate transfers and
prices offset the rise in farm earnings and the decline in
livestock inventories. Stable to somewhat lower interest
rates also tended to encourage more borrowing. Moreover, a more competitive stance on the part of the Farm
Credit System (FCS) probably augmented the amount
of credit available to farmers. The influence of the above
components in adding to farm debt in 1996 may have
been partially countered by faster loan repayments.
Despite the emergence of more repayment problems
among hard-pressed cattlemen, high grain prices, higher
farm earnings, and sizable government payments to
farmers probably led to increased loan repayments
among most other farmers.
For several years, banks paced the uptrend in outstanding farm debt. The share of farm debt owed to
banks rose steadily from a low of 21 percent in the early
1980s to just under 40 percent last year. The expanding
share owed banks was evident in both their niche area of
nonreal estate lending and in loans secured by farm real
estate. The nonreal estate share
owed banks rose from 37 percent
in 1981 to 53 percent. Banks’
Percent owed to *
share of farm real estate debt
FCS
FSA
LIC’s
I&O’s
rose even more, from 7 percent
22.2
3.7
3.6
20.5
in 1982 to over 28 percent last
23.5
4.4
5.7
27.7
year. With their rapid growth
14.7
4.5
3.5
29.5
in farm mortgage lending, the
40.7
8.8
2.0
26.1
share of farm real estate debt
owed to banks came within
27.5
6.4
1.1
23.3
nearly 3 percentage points of
22.3
5.0
3.4
25.6
matching the eroding share
24.8
6.7
6.0
22.7
owed the FCS.
The vastly restructured
FCS is once again becoming a

dominate farm lender. The FCS is a nationwide system of
cooperatively-owned lending institutions serving mostly
farmers and farm cooperatives. Its status as a government sponsored enterprise (GSE) allows the FCS to fund
its loans at very competitive rates through securities sold
to investors. The FCS grew rapidly during the agricultural boom in the 1970s. By the early 1980s, it accounted for
over a third of all outstanding farm debt, including a 44
percent share in its niche area of farm mortgage lending.
The restructuring triggered by the agricultural crises in
the 1980s subsequently pulled the FCS share of farm debt
down to 24 percent. Since 1993, the FCS’s portfolio of
nonreal estate farm loans has grown faster than that for
any other lender. And this year, the FCS may record the
largest rise of any lender in farm real estate loans. The
FCS’s portfolio that contains mostly mortgage loans to
farmers has registered abnormally large quarterly gains
since the latter part of 1995. As of the end of September
1996, that portfolio was up more than 5 percent from a
year ago. In comparison, the year-over-year gain in farm
real estate loans held by banks has been narrowing, falling to 4 percent in September.
The analysis of farm debt trends is less precise for
local regions than for the U.S. as a whole. This is because
the data is largely based on the location of the lender
rather than the borrower. This can cause distortions
when, for example, a lender located in one state extends
credit to a farmer in another state. The problem grows as
nationwide branching becomes more prevalent in banking and as the lending opportunities for entities within
the FCS become less restrained by local and district
boundaries. Aside from these caveats, however, it appears that the trends in farm debt among the five states
comprising the Seventh Federal Reserve District have
paralleled the nationwide trends in recent years. The five
states collectively account for 21 percent of all farm debt
nationwide, unchanged from their share in the late 1980s
and only 1 percentage point below the region’s share
when farm debt peaked in 1984.
Of the roughly $31.6 billion in farm debt among
District states as of the end of 1995, nearly 57 percent was
secured by farm real estate. The share secured by real estate was highest in Indiana and lowest in Wisconsin. The
latter may reflect the dominance of dairying in Wisconsin
and the convenience a monthly milk check offers for collateralizing farm debt. The distribution of debt by lender
shows the share of farm debt owed to banks is higher
among District states than elsewhere (44 percent compared to 39 percent). However, the share of farm debt
owed banks varies substantially among the five District
states, ranging from 50 percent in Illinois to 22 percent in
Michigan. The share owed to the FCS approximates 22

percent over the five-state region, ranging from a low of
15 percent in Iowa to a dominating share of nearly 41 percent in Michigan. The share owed to life insurance companies in all District states is lower than the national
average and the share owed to the Farm Service Agency
(of the U.S. Department of Agriculture) is lower in all District states other than Michigan. The share reportedly
owed to individuals and others over the five District
states has edged higher in recent years but, at 26 percent,
remains below the share that category accounted for a decade ago.
Gary L. Benjamin

TRACTOR SALES HIGHEST SINCE 1983
Unit sales of farm tractors with at least 40 horsepower are
on track to post an annual gain for the fourth consecutive
year. Reports from the Equipment Manufacturers Institute
show that farm tractor sales totaled 62,100 during the first
eleven months of 1996, 6 percent more than a year earlier.
In comparison, combine sales suffered a year-over-year
decline of 5 percent to about 7,800 units despite a strong
performance in the late summer and early autumn. Internationally, the U.S. expanded farm equipment exports in
fiscal 1996 and realized a trade surplus, in contrast to the
deficit recorded the prior year.
Units sales of new farm tractors were somewhat
variable over the past year. Sales got off to a good start
last January, aided by record-high grain prices. But deliveries faded rapidly in the ensuing two months as the debate
over farm legislation dragged on and the uncertainty surrounding the future of U.S. farm programs reached a new
level. April brought strong year-over-year gains in tractor purchases as the new farm bill improved the financial
outlook and farmers increased the acreage planted to corn
and soybeans. The changes were relatively modest over
the next five months, but then tractor sales exploded in
October, registering a year-over-year gain of 26 percent
before dropping back to a minor increase in November.
While each of the broad size categories registered
an increase in sales, larger tractors played a relatively
greater role in the improved results. Through November,
unit sales of large two-wheel-drive tractors—100 or more
horsepower—were about a tenth above the prior year’s
pace. Sales of four-wheel-drive tractors were up 7 percent
through November, somewhat below the double-digit
increases of the past three years. In comparison, sales of
smaller farm tractors—40 to 99 horsepower—registered
a more modest year-over-year gain of 4 percent for the
January-November period.
Tractor sales were fueled by an increase in the acreage
planted to major crops in 1996 that stemmed in part from

equipment manufacturers made significant strides in the
international arena during the fiscal year ending September, 1996, boosting foreign sales nearly a fifth to $3.2 billion.
The improvement was led by a particularly sharp increase
in exports of tractors and other self-propelled equipment.
In addition, the gain in exports coincided with a decline in
imports of farm equipment. Those developments boosted
the industry’s trade balance to a surplus of $390 million, a
turnaround of nearly three-quarters of a billion dollars
from the trade deficit of the prior year.

Unit sales of tractors with 40 or more horsepower
units
9,500

Range, 1990-94
1996
7,000

4,500

1995

2,000
Feb.

April

June

Aug

Oct.

Dec.

Source: Equipment Manufacturers Institute.

the dismantling of the acreage reduction program. But farm
income was probably the most important factor contributing
to the increase. Projections from the USDA indicate that
net cash income to the farm sector will be near $58 billion
in 1996, a tenth higher than the 1991-95 average. Higher
prices for wheat, corn, soybeans, milk, and hogs helped
boost cash receipts from farm commodity sales. And despite
the high crop prices, direct government payments to
farmers were higher than in each of the previous two
years. Moreover, the strong pace in agricultural exports
added to the rise of farm income in 1996.
In contrast to the improved market for new farm
tractors, combine sales logged a decline in 1996. Unit
sales during the first eight months of the year were down
sharply from the prior year, posting a cumulative decline
of 16 percent. The next three months brought a remarkable turnaround, with a year-over-year sales gain for the
September-November period approaching 15 percent.
This pattern probably stemmed from a double whammy
experienced by farmers earlier in the year. After the uncertainty surrounding the farm bill situation was resolved
in April, farmers faced a late spring that extended corn
and soybean planting dates considerably beyond the
norm and left the crops exposed to a shortened growing
season. With crop yields in doubt up until the last moment,
farmers chose to postpone combine purchases until they
had a better feel for the size of the harvest.
Farm machinery and equipment manufacturers
belong to a mature industry that underwent considerable restructuring following the prosperous times of the
1970s. Over time, the domestic industry has evolved into
a smaller group of globally competitive firms that look to
exports and capital investment in foreign nations as part
of a strategy to enter new markets and expand sales.
Furthermore, USDA reports show that domestic farm

An additional perspective on the performance of
the farm equipment industry is evident from output and
employment measures. These statistics—compiled by the
U.S. Department of Commerce—indicate that farm equipment manufacturers have been in an expansion phase since
1992. Furthermore, annual output—as measured by the
value of manufacturers’ shipments—has recovered to a
level near the 1981 peak. But taking a longer view—and
adjusting for inflation—the data show the average annual
value of shipments so far in the current decade is well below the average for the past two decades and only slightly larger than the norm for the 1960-69 period. And even
though industry employment rose in recent years, it is still
well below the average levels of the past three decades.
These changes mirror (and were influenced by) the
downsizing and restructuring experienced by production
agriculture in the 1980s. Yet they also point to an industry
that has improved productivity and is more competitive
than in the past. Manufacturers have adjusted to the
changed environment, adopted new technology, and the
benefits have been reaped as steady gains in real output
per employee, which is higher than at any time in the past
three decades. And though inventories have fluctuated
somewhat in the past few years, they remain—in real
terms—well below the levels that existed even in the 1960s.
Mike A. Singer
AgLetter (ISSN 1080-8639) is published monthly by the Research
Department of the Federal Reserve Bank of Chicago. It is prepared by
Gary L. Benjamin, economic adviser and vice president, Mike A. Singer,
economist, and members of the Bank’s Research Department, and is
distributed free of charge by the Bank’s Public Information Center. The
information used in the preparation of this publication is obtained from
sources considered reliable, but its use does not constitute an endorsement of its accuracy or intent by the Federal Reserve Bank of Chicago.
To subscribe, please write or telephone:
Public Information Center
Federal Reserve Bank of Chicago
P.O. Box 834
Chicago, IL 60690-0834
Tel. no. 312-322-5111
Fax no. 312-322-5515
Ag Letter is also available on the World Wide Web at
http://www.frbchi.org.

SELECTED AGRICULTURAL ECONOMIC INDICATORS

Percent change from
Latest
period

Value

Prior
period

Year
ago

Two years
ago

Prices received by farmers (index, 1990–92=100)
Crops (index, 1990–92=100)
Corn ($ per bu.)
Hay ($ per ton)
Soybeans ($ per bu.)
Wheat ($ per bu.)
Livestock and products (index, 1990–92=100)
Barrows and gilts ($ per cwt.)
Steers and heifers ($ per cwt.)
Milk ($ per cwt.)
Eggs (¢ per doz.)

November
November
November
November
November
November
November
November
November
November
November

110
116
2.64
95.10
6.80
4.07
103
54.60
70.40
15.20
82.7

–1.8
–2.5
–8.7
1.5
–2.2
–2.6
0.0
–2.3
3.4
–5.6
10.9

4
–1
–8
19
6
–15
10
35
8
9
7

16
16
33
10
27
9
14
91
3
16
34

Consumer prices (index, 1982–84=100)
Food

November
November

159
156

0.2
0.3

3
4

6
7

September 1
September 1
September 1
October
October
November

426
183
1,724
2.18
1.59
10.6

N.A.
N.A.
N.A.
12.6
13.0
–3.1

–73
–45
–8
0
1
0

–50
–12
–17
3
–2
0

August
August
August
August

16,254
8,295
7,600
359

–5.8
–3.8
–1.7
–59.8

9
6
7
1,336

16
35
–2
379

Agricultural exports (mil. dol.)
Corn (mil. bu.)
Soybeans (mil. bu.)
Wheat (mil. bu.)

September
September
September
September

4,376
100
42
129

–5.4
–8.8
–20.9
–12.5

–7
–60
–41
–3

23
–13
–2
7

Farm machinery sales (units)
Tractors, over 40 HP
40 to 100 HP
100 HP or more
Combines

November
November
November
November

5,449
3,082
2,367
1,439

–28.5
–27.4
–29.8
30.1

1
1
1
25

6
2
11
59

Production or stocks
Corn stocks (mil. bu.)
Soybean stocks (mil. bu.)
Wheat stocks (mil. bu.)
Beef production (bil. lb.)
Pork production (bil. lb.)
Milk production* (bil. lb.)
Receipts from farm marketings (mil. dol.)
Crops**
Livestock
Government payments

N.A. Not applicable
*22 selected states.
**Includes net CCC loans.

AgLetter is printed on recycled paper
using soy-based inks

Federal Reserve Bank of Chicago
Public Information Center
P.O. Box 834
Chicago, Illinois 60690-0834
312-322-5111

AgLetter

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