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___________ Agriculture
AN EIGHTH DISTRICT PERSPECTIVE
FA LL 1984

Eighth District Agricultural Banks
Weather the Financial Storm
Agricultural banks in the Eighth District, according to many
observers, are under the same financial stress as agricultural
lenders across the nation. Evidence o f this financial stress
is usually founded on surveys, which show that farm loans
are being repaid slowly and that asset values supporting these
loans are declining. Under expectations that collateral values
could decline further while real returns to farming remain
stable or fall, prospects for many agricultural banks, say these
observers, look bleak.
Agricultural banks in the Eighth District, however, have
earned higher average returns on assets and equity than rural
and city banks not engaged in agricultural lending. Banks
with more than 30 percent o f their loan portfolio allocated
to agricultural loans have earned returns consistently higher
than banks that are o f similar size but hold less than 5 per­
cent o f total loans in the form o f agricultural loans. Table
1 shows that, in the 11 years spanning 1973-83, agricultural
banks earned average returns o f 1.1 percent on assets and
13.4 percent on equity. These returns compare with rates
o f 1.0 and 11.9 percent for rural nonagricultural banks.
Nonagricultural banks in metropolitan areas earned average
returns o f 0.9 percent on assets and 10.5 percent on equity.
Even in 1983, when many economists started to report signs
o f financial stress in agriculture, agricultural banks posted
returns on assets equal or superior to the other two classifica­
tions. Agricultural banks’ return on equity, however, was
lower than that o f rural nonagricultural banks but equal to
that o f city banks.

The prospects for agricultural loan losses increasing in the
Eighth District can be examined in table 2, which presents
the proportion o f agricultural loans considered more than 30
days past due. Loans reported as “ past due” have some
likelihood o f later turning up as loan losses and, therefore,
provide a rough indicator o f anticipated volumes o f future
loan losses. For the seven District states, banks in five states
have seen declines in the percentage o f farm production loans
past due since the end o f 1982. Increases in the shares o f
delinquent loans for banks in Indiana and Tennessee have
been slight. Although these data do not rule out the existence
o f financial stress in particular areas affected by production
problems, the trends do not indicate significant increases in
problem loans for Eighth District agricultural banks as a
whole.

1985 Farm Programs Announced
Producers o f wheat, feedgrains, cotton and rice can sign
up for the 1985 acreage programs from October 15 until
March 1. The programs’ payment levels and qualification
criteria are presented in table 3. Upon sign-up, producers
can request 50 percent o f both projected 1985 deficiency and
land diversion payments. Offsetting and cross compliance
requirements have been waived, which allows a farmer to
participate in the program for one crop while not participating
in another.

The benefits accruing to an individual farmer from pro­
gram participation are difficult to assess in advance because
Table 1 also shows that while agricultural banks in the
little is known about the size o f next year’ s crops and the
District have experienced higher loan loss rates since the
demand for those commodities. In general,
drought year o f 1980, the losses are likely
however, it is important to compare prices
due to factors other than nonperforming
expected to exist at the time o f 1985’ s fall
agricultural loans. This is indicated by an
harvest with a program’ s loan rate (the sup­
TH E
average loss rate for agricultural banks on
port level) and its target price (the basis for
FEDERAL
a par with that o f rural banks that hold few
RESER\E
deficiency payments). On the basis o f this
HANK of
agricultural loans. The loss rates o f city
comparison, a producer can evaluate the
ST. IX H I S
banks, however, have not risen over the
benefits o f protection against market prices

same
time period.
declining below support levels relative to the


possiblity o f foregone earnings if prices should rise above
target levels, but production has been reduced as required
by the commodity programs. For example, 1985 futures
prices for corn and wheat dated for delivery near the time
o f their respective harvests currently are near $2.80 and $3.40
per bushel, only slightly above the price floors established
by loan rates. Even with loan rates and target prices little

changed from 1984 program levels, these expected prices
and anticipated increases in production costs suggest that the
price insurance afforded to program participants may be
valuable during the 1985 crop year.
—Michael T. Belongia and
Kenneth C. Carraro

Table 1
Return on Assets and Equity and Net Loan Loss Percentage
(Eighth District banks with less than $100 million in total assets)

1977

1973

1974

1.1
0 .9
0 .9

1.1

1 .0

1.1

1 .0
0 .8

0 .9
0 .7

1 .0
0 .8

1 3 .3
11.1
8 .7

1 3 .4

1 3 .6

1 1 .8
9 .0

1 2 .6
9 .8

1975

1976

1978

1979

1980

1981

1.1

1.1
1.1
0 .9

1 .3
1.1
0 .9

1 .2

1 .0
0 .8

1 .0
1 .0

1 2 .9

1 4 .5

1 3 .5

12.1

1 2 .4

1 2 .8
1 1 .4

1 3 .3
1 1 .7

1 2 .3
1 1 .6

1 0 .8
1 1 .4

0 .6
0 .4

Average

1982

1983

1.1

1.1

1 .0

1.1

0 .9
0 .9

0 .8

1 .0
0 .9

1.0
0.9

9 .9
1 0 .6

1 1 .3
1 2 .0
1 1 .3

11.9
10.5

0 .7

0 .9

0.4

0 .6
0 .4

0 .9
0 .4

0.4

RETURN ON ASSETS
Rural A gricultural Banks
Rural N onagricultural Banks
City Nonagricultural Banks

0 .8

RETURN ON EQUITY
Rural Agricultural Banks
Rural N onagricultural Banks
City Nonagricultural Banks

1 4 .9

1 4 .8

1 1 .8
1 0 .8

1 2 .7
9 .4

0 .2
0 .2

0 .2

0 .2

0 .2

0 .2

0 .2

0 .2

0 .4

0 .2

0 .2
0 .2

0 .3

0 .3

0 .4
0 .4

0 .2

0 .2

0 .4
0 .4

0 .4
0 .4

13.4

LOAN LOSS PERCENTAGE
Rural A gricultural Banks
Rural N onagricultural Banks
City Nonagricultural Banks

0 .3

0 .3

0 .3

Table 2
Farm Production Loans Past Due 30 Days or More as a
Percentage of Total Farm Production Loans 1
Date
State
A rkansas
Illinois
Indiana
Kentucky
Mississippi
Missouri
Tennessee

12/31/82
5 .0 %
2.1
2 .7
3.1
5 .2
3 .3
4 .8

12/31/83
4 .2 %
1.9
3.1
2 .9
3 .8
3 .2
5.1

1 1nsured commercial banks at which farm production loans exceed 1 percent of total
loans

Table 3
1985 Farm Program Provisions

Crop
Corn
Sorghum
W heat
U p lan d Cotton
Rice

Maximum
allowable planting
(percent of base)
90%
90
70
70
65

Loan rate1
$2.55
2.42
3.30
0.57
8.00

Target1
price
$ 3.03
2.88
4.38
0.81
11.90

Diversion2
payment
n.a.
n.a.

$2.70
0.30
3.50

1 Values for corn, sorghum and wheat are dollars per bushel. Cotton is cents per pound. Payments for rice are dollars per hundredweight.
2 Required paid acreage division for wheat and upland is 10 percent of base; for rice, 15 percent.

2 FRASER
Digitized for


0.3

FEDERAL RESERVE BANK OF ST. LOUIS

FALL 1984

EIGHTH DISTRICT AGRICULTURAL DATA
Percent Change
Prices and Costs1
CONSUM ER PRICE INDEX (% change)
Nonfood
Food

June
1984

0.2%
0.1

July
1984

0.3%
0.2

Aug.
1984

0.4%
0.8

Average Year-To-Date
19842
for 1983

0.3%
0.2

2.8%
3.2

Same Period
Year Ago

4.2%
4.2

PRODUCTION COSTS FOR FARMERS (% change)
All inputs
Fertilizer
A gricultural chem icals
Fuels and energy

0.0
0.0
0.0
-0 .2

-0 .3
0.0
0.0
-1 .0

-0 .3
0.0
0.0
-1 .0

0.8
-0 .2
0.3
-0 .3

-4 .0
8.1
2.5
-0 .7

2.5
6.4
2.0
-4 .7

PRICES RECEIVED BY FARMERS (% change)
All products
Livestock
Crops

-0 .4
-1 .2
1.1

0.0
1.2
-2 .2

-0 .4
-2 .0
2.2

0.8
0.3
1.6

2.7
-0 .4
6.1

3.1
2.5
4.5

FEEDER CATTLE
W holesale price - Kansas City ($/cwt.)

$63.16

$63.80

$64.05

$63.71

0.6

9.3

FEEDER PIGS
W holesale price - So. Missouri ($/head)

$39.58

$34.27

$34.30

$33.96

24.1

42.9

BROILERS
• W holesale price - 12-city ($/lb.)

55.53$

57.30$

51.47$

50.39$

-9 .9

-5 .1

TURKEYS
W holesale price - New York,
8-16 lb. young hens ($/lb.)

67.00$

68.57$

72.40$

60.48$

-3 .7

25.7

CORN
W holesale price - St. Louis ($/bu.)

$ 3.57

$ 3.43

$ 3.33

$ 3.27

-3 .5

-9 .5

SOYBEANS
W holesale price - N.C. Illinois ($/bu.)

$ 8.13

$ 6.96

$ 6.53

$ 6.86

- 1 7 .7

- 1 5 .2

W HEAT
W holesale price - No. 1, hard w inter Kansas City ($/bu.)

$ 3.80

$ 3.67

$ 3.80

$ 3.95

-1 .3

-2 .1

LONG-GRAIN RICE
W holesale price - Arkansas ($/cwt.)

$18.62

$18.62

$18.41

$18.40

- 3 .1

-0 .5

COTTON
W holesale price - all markets ($/lb.)

69.50$

68.20$

68.10$

62.30$

1.2

1.6

Percent Change
U.S. Exports
Corn (mil. bu.)
Soybeans (mil. bu.)
W heat (mil. bu.)
Rice (rough equivalent, mil. cwt.)
Cotton (thou, bales)

Apr.
1984

May
1984

June
1984

175.3
68.6
104.8
6.3
850.0

164.4
56.8
121.5
6.2
593.3

112.0
41.1
113.0
4.7
448.8

157.6
69.5
125.7
5.9
459.7

- 3 6 .4
- 4 4 .8
- 14.1
-6 .3
- 3 2 .3

- 2 6 .2
- 3 9 .3
-8 .7
- 3 7 .9
-2 .0

$4,944
913

$6,120
1,241

$5,079
943

$5,779
1,234

-3 .9
-8 .9

-1 0 .7
- 2 6 .0

5,621
878

6,423
1,002

5,839
937

5,763
930

-2 .2
-4 .3

-0 .3
4.5

Average Year-To-Date
for 1983
19842

Same Period
Year Ago

Receipts3
CROPS (m illions of dollars)
United States
D istrict (seven-state total)
LIVESTOCK (m illions of dollars)
U nited States
D istrict (seven-state total)



3

EIGHTH DISTRICT AGRICULTURAL DATA

Marketing Year
Crop Production4

1981/82

1982/83

1983/84

CORN (O ctober 1 - S eptem ber 30)
Acres planted (mil. acres)
Production (mil. bu.)
Yield (bu. per acre)
Ending stocks (mil. bu.)

84.1
8,118.7
108.9
3,880.1

81.9
8,235.1
113.2
4,923.9

60.2
4,166.1
81.0
2,137.1

SOYBEANS (Septem ber 1 - August 31)
Acres planted (mil. acres)
Production (mil. bu.)
Yield (bu. per acre)
Ending stocks (mil bu.)

67.5
2,000.2
30.2
646.4

70.9
2,229.5
32.1
790.6

63.1
1,566.0
25.3
456.5

W HEAT (June 1 - May 31)
Acres planted (mil. acres)
P roduction (mil. bu.)
Yield (bu. per acre)
Ending stocks (mil. bu.)

88.3
2,785.4
34.5
1,159.4

86.2
2,765.0
35.5
1,515.1

76.4
2,419.8
39.4
1,394.0

RICE (August 1 - July 31)
Acres planted (mil. acres)
Production (mil. cwt.)
Yield (cwt. per acre)
Ending stocks (mil. cwt.)

3.8
182.7
48.2
49.0

3.3
153.6
47.1
71.5

2.2
99.7
46.0
46.9

14.3
15.6
1.1
6.6

11.3
12.0
1.2
7.9

7.9
7.8
1.1
2.8

COTTON (August 1 - Ju ly 31)
Acres planted (mil. acres)
Production (mil. bales)
Yield (net bales per acre)
Ending stocks (mil. bales)

1 The consumer price index and its components are seasonally adjusted. All other data are not seasonally adjusted.
2 Percent change from December 1983, based on the most recent month available.
3 Data for receipts are seasonally adjusted.
4 Annual data for crops are based on each crop’s marketing year. SOURCE: Crop Production, Statistical Reporting Service,
Crop Reporting Board, USDA.



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