View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1889

June 1997

AgLetter
FARM DEBT
Farm debt continues to edge upward as expanding production and capital expenditures add to the loan demand
facing farm lenders. Final tallies for 1996 are not yet
complete. However, reports from three of the main
lending institutions that serve farmers—banks, the Farm
Credit System and life insurance companies—provide
considerable insight on a large share of total farm debt.
Those reports, coupled with earlier USDA projections
for other lenders, suggest that farm debt approximated
$156.2 billion at the end of 1996, up 3.6 percent from the
year before. Of the total, about $81.7 billion was secured
by farm real estate, while the remaining $74.5 billion
constituted the so-called nonreal estate (or all other)
farm debt. For the fourth consecutive year, the relative
(percentage) rise in nonreal estate farm debt last year
slightly exceeded that for farm real estate debt.
Last year’s growth in farm debt, while not large
from the perspective of the 1960s and 1970s, was considerably above the 2.7 percent annual average of the three
previous years. Pending final tabulations, last year’s
rise may also represent the largest annual rise since the
early 1980s. Changes from one year to the next in the
amount of farm debt encompass many variables. The
most important are those that influence the demand for
new loans, the willingness and ability of lenders to extend
new credits to farmers, and the ability of farmers to repay
existing loans. Current and prospective farm earnings
are a key attribute in all three areas. As such, faster debt
growth may reflect relatively strong earnings, or it may
stem from lower earnings.
Some observers are inclined to view faster debt
growth as an ominous sign. This view has been accentuated by the apparent phasing out of government price
support programs for agriculture. And there were components of the farm sector that faced considerable stress
last year, especially beef-cow operators. But in most other
respects, last year’s faster debt growth probably reflected
relatively strong earnings among farmers. The combination of very high grain prices and sizable government
payments added significantly to the earnings of crop
farmers. On the one hand, those high earnings tempered
the need for new operating credit while helping to sustain

repayments on existing indebtedness. Reflecting the latter,
various surveys point to fairly strong farm loan repayment rates through much of last year, although the pace
did slow in the final quarter when grain prices retreated.
In addition, outstanding CCC loans—crop price-support
loans obtained from the Commodity Credit Corporation—retreated considerably last year.1
While high crop earnings may have tempered the
demand for new operating loans and sustained loan
repayment rates, the relatively prosperous conditions
in 1996 also triggered increased capital expenditures and
more aggressive bidding on farmland. Unit retail sales
of farm tractors and combines rose for the fourth consecutive year in 1996. Moreover, the ongoing structural
change in the livestock, dairy, and poultry sectors added
to the expenditures on new farm buildings and facilities.
In addition, various reports show farmland values for
much of the Midwest rose a tenth or more last year with
no fall-off in the amount of transfers. The increased borrowings needed to finance these expenditures no doubt
added to the faster growth in farm debt last year.
Banks remain the dominant institution serving the
credit needs of farmers. The combined portfolio of loans
to farmers held by all banks rose 2.8 percent in 1996,
reaching $65.5 billion at year end. The total included
$25.0 billion (up 4.6 percent) in farm loans secured by
The share of bank-held farm loans that are secured
by real estate continues to rise
percent
45

District
states
35

U.S.

25

15
1984

’87

’90

’93

’96

real estate and $40.5 billion (up 1.8 percent) in all other
loans to farmers. Last year’s rise for both components
fell well short of the trend rate of growth for the last
several years.
The USDA series on farm debt focuses on the businessrelated component of loans to farmers and thus excludes
the household-related financings of farm families. As
such, the above totals for bank loans to farmers will likely
translate into about $61.7 billion in the USDA series on
farm debt. The share of farm debt owed to banks had
been rising steadily, from around 22 percent in the early
1980s to a peak of just under 40 percent at the end of
1995. However, the available reports show most other
lenders recorded faster growth in farm loans than banks
in 1996. Consequently, the share of farm debt owed
banks likely edged nominally lower last year.
The fastest growth appears to have been in the Farm
Credit System (FCS), the second largest institutional lender
serving farmers. The reports from this cooperativelyowed system of entities that lends mostly to farmers and
their cooperatives (as well as certain other rural-related
borrowers) shows their portfolio of loans to farmers rose
about 6 percent in 1996. That gain will likely translate into
about $39.7 billion in farm business debt owed to the FCS
when the USDA completes its final estimates.
In recent years, nonreal estate farm loans have been
the fastest growing component of the farm debt owed
the FCS. Preliminary figures show nonreal estate farm
loans held by the FCS rose 12 percent for the second consecutive year in 1996. The largest component of the farm
debt owed to the FCS is secured by real estate. It appears
farm real estate debt owed the FCS rose about 3.7 percent
in 1996, reaching $25.8 billion at year end. It was the second consecutive annual rise in such loans, reversing the
downturn of the prior ten years. The FCS remains the
largest lending institution providing real estate financing
to farmers, but their roughly 31.5 percent share now outranks banks by only 3 percentage points. During the first
half of the 1980s, the FCS accounted for over 40 percent
of the farm debt secured by real estate while the share
owed banks averaged less than 10 percent.
Life insurance companies have also provided a
year-end update on farm loans, virtually all of which
are secured by real estate. A report from the American
Council of Life Insurance shows their member companies recorded a 4.0 percent rise in farm loans in 1996. As
tracked by the USDA, that implies some $9.46 billion in
farm business real estate debt was owed to life insurance
companies (LICs) at the end of 1996.
In addition to the lenders noted above, final tabulations on farm sector debt await USDA estimates for the
Farm Service Agency (FSA) and for the catch-all category

identified as individuals and others. The FSA is the successor to the Farmers Home Administration. Farm debt
owed this federal government agency has been trending
steadily lower for 11 years, reflecting cuts in programs
that lend directly to farmers and the belated write-offs
Farm debt, U.S.
billion dollars
200

150

Other farm debt
100

50

Secured by real estate

0
1971

’76

’81

’86

’91

’96*

*Preliminary

Distribution of farm debt by lender
percent
45

Banks
30

FCS
I&O
15

FSA
LICs
0
1971

’76

’81

’86

’91

’96*

*Preliminary.

Farm debt owed to banks in District states
index, 1982-84=100
150

IL

WI

IA
125

IN
100

MI
75
1981
*Preliminary

’84

’87

’90

’93

’96*

and restructurings for the large share of its portfolio that
became uncollectible over the years. Earlier, the USDA
projected that the amount of farm debt owed the FSA
declined 8 percent in 1996. The estimated $9.3 billion in
such debt outstanding at the end of 1996, if supported by
final tallies, would mark a drop of over 60 percent from
the peak of 11 years ago.
The amount of farm debt owed to individuals and
others (I&O) is substantial. But relative to the reports
that help track the performance at other farm lenders,
the information for this category of lenders is limited.
However, it has been among the fastest growing sources
of credit for farmers in recent years. Earlier, the USDA
projected that the amount of farm debt owed to individuals and others reached $35.9 billion as of the end of
1996. That marked an increase of 5.1 percent from the
year before and it extended the record of relatively strong
growth that has characterized this component of farm
debt during the 1990s. Since 1990, the amount of farm
debt owed to individuals and others has risen nearly 29
percent, virtually matching the strong performance of
banks over the same period. The rise in nonreal estate
farm lending over that period has been especially strong
(37 percent) as farmers increasingly turn to non-conventional lenders (such as farm equipment manufacturers,
merchants and dealers of farm inputs, and farm-supply
cooperatives) to finance their operations. Increasingly, the
farm loans provided through these sources encompass all
types of credits, not just loans to finance the product of
the entity providing the financing.
While the reports that track farm debt nationwide
are becoming more complete for 1996, comparable information for individual states still awaits further compiling by the USDA. Currently, information on farm loans
held by banks is about all that is available at the state level.
Farm loans held by all banks in the five states comprising
the Seventh Federal Reserve District rose 5.6 percent last
year, double the gain reported by banks nationwide.
Farm loans secured by real estate rose 5.3 percent among
banks in District states while nonreal estate farm loans
rose 5.8 percent. The performance in farm loans at banks
for individual District states varied widely last year.
Farm loans at banks in Indiana declined marginally last
year, reflecting modest cuts in both the real estate and
the nonreal estate components. At the other extreme,
farm loans at banks in Illinois rose nearly 9 percent, with
strong gains for both real estate and nonreal estate farm
loans. The rise in farm loans among all banks in Iowa
approached 6 percent while that for banks in both Michigan
and Wisconsin approximated 4 percent. Nonreal estate
farm loans paced the rise in farm loans among Iowa banks
while the real estate component dominated the growth in

farm loans at banks in Michigan and in Wisconsin. The
reasons behind the widely varying farm loan growth
rates are not entirely clear.
Although farm loans at all banks in District states
rose substantially last year, trends for individual banks
varied considerably. At the end of 1995, there were just
over 1,900 banks in the five District states that had a
portfolio of farm loans. During 1996, less than 60 percent
of those banks expanded their farm loan portfolio. Farm
loans among those “expanding” banks rose more than a
fifth, propelling their share of all bank-held farm loans
from 63 percent at the end of 1995 to 73 percent one year
later. Another 5 percent of the farm-lending banks (holding
a comparable share of farm loans at all banks) went out
of existence in 1996 as a result of mergers and acquisitions
and/or restructurings into branching systems among
banks previously organized as a multi-bank-holding
company. Presumably, the bulk of the farm loans held by
the banks that went out of existence went to the acquiring
and/or surviving banks and probably accounted for much
of the extraordinarily large gains recorded by some of
the “expanding” banks. The remaining 35 percent of the
banks with a portfolio of farm loans at the end of 1995
recorded a decline in that portfolio during 1996. Farm
loans at these “cutting” banks fell by a tenth. Among
the District states, the share of banks with farm loans
that went out of existence in 1996 was noticeably higher
in Iowa and Wisconsin. Similarly, a proportionately large
share of the “cutting” banks were located in Michigan
while Iowa registered a proportionately large share of
the “expanding” banks.
Gary L. Benjamin
1
CCC loans are not included in USDA farm debt figures. To the extent
that loans from traditional farm lenders are a substitute for CCC loans,
the indicated 1996 rise in farm debt may be somewhat overstated.

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.)

May
May
May
May
May
May
May
May
May
May
May

107
117
2.68
118.00
8.42
4.09
100
58.60
68.80
13.10
64.3

0.9
1.7
–4.3
0.9
2.3
–0.5
1.0
7.7
1.3
–2.2
–2.3

–4
–11
–35
24
9
–29
3
2
19
–8
–7

7
1
11
29
51
11
14
56
8
7
16

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

May
May

160
157

–0.1
0.0

2
3

5
6

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.)

March 1
March 1
March 1
April
April
May

4,494
1,056
822
2.10
1.45
11.8

N.A.
N.A.
N.A.
6.5
1.7
3.0

18
–11
0
–3
–3
2

–20
–23
–15
13
3
0

Receipts from farm marketings (mil. dol.)
Crops**
Livestock
Government payments

February
February
February
February

13,343
6,144
7,126
74

–35.9
–44.4
–9.3
–96.1

3
0
7
–61

0
12
0
–90

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

March
March
March
March

4,984
165
67
59

1.2
7.7
–36.5
–4.1

–9
–23
–28
–47

–1
–16
–20
–45

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

May
May
May
May

7,215
4,631
2,584
582

–15.8
3.0
–36.5
–4.9

22
19
28
18

25
18
40
–6

N.A. Not applicable
*20 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

PRESORTED
FIRST-CLASS MAIL
ZIP + 4 BARCODED
U.S. POSTAGE PAID
CHICAGO, ILLINOIS
PERMIT NO. 1942


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102