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Agriculture
AN EIGHTH DISTRICT PERSPECTIVE
Spring 1985

Financial Stress in Agriculture: A Look at
Bank Data
The incidence of financial stress in agriculture has been
alleged to be a widespread phenomenon. To support this claim,
analysts have cited higher rates of farm foreclosures, contin­
uing declines in real farm income and high debt-to-asset ratios
for a growing segment of medium-sized farms. They also have
cited statistics on the deteriorating balance sheets of agricultural
banks as another indicator that rural areas have not yet joined
the economic recovery that began in late 1982. In fact,
according to some analysts, the agricultural banking data is
more alarming than the situation described by farm balance
sheets because the failure of agricultural banks would adversely
affect many rural businesses in addition to farmers.

Problem Banks: A Definition
The status of a bank can be assessed with a variety of
measures, but our immediate interest concerns the solvency
and future viability of agricultural banks. With this in mind,
problem banks can be defined as those for which the value
o f delinquent loans exceeds the sum o f total bank capital
and loan loss reserves. The latter two items represent the
resources o f a bank to absorb loan losses. Using this com­
parison, if all loans currently delinquent were written off,
loan losses would exceed bank equity and the banking firm
would be insolvent. This definition o f “ problem banks”
should not be co n fu sed w ith the tech n ically

Table 1
Problem Banks: The United States vs. The Eighth District

U.S. Problem Banks
Rural1
Urban
TOTAL
District Problem Banks
Rural
Urban
TOTAL

December 31, 1984

December 31, 1983

December 31, 1982

Number

Number

Number

Percent

Percent

Percent

374
262

59%
41

265
234

53%
47

242
264

48%
52

636

100%

499

100%

506

100%

37
5

88%
12

31
3

91%
9

33
4

89%
11

42

100%

34

100%

37

100%

’ Rural banks are defined as all banks not in a Metropolitan Statistical Area. Urban banks are defined as those in an MSA.

In this issue we review the most recent data
on agricultural banks in the Eighth District
and compare them with data for earlier time
periods, non-agricultural banks and U.S.
averages. We find support for the conten­
tion that the status of agricultural banks
nationally has deteriorated. In contrast,
however, the status of District banks has
changed little in the past two years.




THE
EEDERVE
A RESERVE
RANK of
ST.IjOI LS

more complex ratings used by the three bank
regulators.
Using these standards, the data in table 1
indicate 636 problem banks in the U.S. as
o f December 31, 1984. Of this total, 374
were rural banks, outside a Metropolitan
Statistical Area (MSA); 262 were banks in
urban locations. The rows of the table also
show that, while the number of problem

FEDERAL RESERVE BANK OF ST. LOUIS

SPRING 1985

Table 2
Problem Banks: Agricultural vs. Non-Agricultural Banks
December 31, 1984

December 31, 1983

December 31, 1982

Number

Number

Number

Percent

Percent

Percent

U.S. Problem Banks
(Agricultural
Loan Ratio)

Greater Than 25%
Less Than 25%
TOTAL

203
433
636

32o/o
68

105
394

100%

499

26%
74

12
22
34

21o/o
79
100%

72
434
506

14o/o
86
100%

35%
65

9
28
37

240/0

District Problem Banks
(Agricultural
Loan Ratio)

Greater Than 25%
Less Than 25%
TOTAL

11
31
42

100%

banks in rural areas has increased by over 54 percent since
December 1982, the number of urban problem banks fell
slightly.
The data for the Eighth District are revealing in that the
District includes 9.7 percent of all U.S. banks, but its 42
problem banks represent only 6.6 percent of the total. Thus,
on average, the status of Eighth District banks is somewhat
better than that of U.S. banks as a whole. This indication
that District banks are in relatively better condition is rein­
forced by comparing the 14 percent increase in the number
of problem banks in the District to the 26 percent increase
in the number of problem banks nationally. The composi­
tion of problem banks in the national and District com­
parisons also is revealing. The mix of problem banks in
the District from rural and urban locations is essentially un­
changed from two years ago whereas, nationally, rural banks
have represented a sharply rising share of the problem bank
group. In the District, however, a relatively larger absolute
share of problem banks is found in rural locations.

Agricultural Banks
Table 2 looks at problem banks, not in terms of location,
but rather the composition of their loan portfolios. Agricultural
banks are identified as those having more than 25 percent of
outstanding loans in agricultural loans.
The national data again reveal a relative deterioration in
the status of agricultural banks, comparable to that of rural
banks. While the total number of problem banks has increased
26 percent since 1982, the number of problem agricultural
banks has almost tripled. The number of problem nonagricultural banks was nearly constant over the same period.

2



100%

76
100o/o

The District data, however, again go against national
trends. Although the percent of agricultural problem banks
was higher than the national average two years ago, the
number of problem agricultural banks has changed only
from nine to 11, and the share of problem banks engaged
in significant agricultural lending has remained nearly con­
stant at 26 percent. In contrast, agricultural banks nationally
have grown from 14 percent of all problem banks to 32 per­
cent of the total in just two years.
However, several limitations in the bank data should be
mentioned. For example, they do not account for the
possibility that banks are turning down some farm ers’ loan
requests. By keeping only their best farm borrowers, banks
would be able to maintain low delinquency rates. Those
farmers refused credit would turn to the government’s
“ lender of last resort,” the Farmers Home Administration
(FmHA). To the extent this is occurring, the bank data
would paint an overly optimistic picture of agriculture’s
financial condition. Banks also may avoid high delinquen­
cy rates by restructuring an otherwise overdue loan into a
new loan.

Conclusion
Analysts have cited agricultural banking data as evidence
of a continuing recession in rural areas. While national
averages do indicate a sharp increase in the number of pro­
blem banks located in rural areas or engaged in agricultural
lending, conditions for Eighth District banks remain largely
unchanged over the past two years.
—Michael T. Belongia and Kenneth C. Carraro

FEDERAL RESERVE BANK OF ST. LOUIS

SPRING 1985

EIGHTH DISTRICT AGRICULTURAL DATA
Percent Change
Prices and Costs1
C O N S U M E R PR IC E IN D E X (% change)
N onfood
Food

Dec.
1984

0 .2 %
0.4

Jan.
1985

0 .3 %
0.3

Feb.
1985

0 .3 %
0.6

A v e ra g e
for 1984

0 .3 %
0.3

Y ear-To-D ate
19852

Same Period
Year Ago

0 .5 %
0.8

0 .8 %
2.7

P R O D U C T IO N C O S TS FOR F A R M E R S (% chan g e )
All in p u ts
F e rtiliz e r
A g ric u ltu ra l c h e m ic a ls
Fuels and e n e rg y

0.0
-1 .4
0.0
-1 .0

0.7
0.0
0.0
-1 .5

0.0
0.0
0.0
-1 .5

-0 .1
0.2
0.2
-0 .1

0 .7
0.0
0.0
-3 .0

0.6
0.0
0.0
1.0

P R IC E S R E C E IV E D BY F A R M E R S (% cha n g e )
All p ro d u cts
L ive sto ck
C rops

-1 .5
1.4
-3 .8

0.0
0.0
0.8

0.0
0.7
-1 .6

-0 .3
0.1
-0 .7

0.0
0 .7
-0 .8

2.9
5.6
0 .7

FEEDER CATTLE
W h o le sa le p rice - K ansas C ity ($/cw t.)

$66.28

$68.40

$69.08

$6 5 .3 2

4.2

4.4

F EE D ER PIG S
W h o le sa le price - So. M isso u ri ($/head)

$ 35.58

$44.85

$44.02

$ 3 9 .1 3

2 3 .7

57.3

B R O ILE R S
W h o le sa le p rice - 12-city ($/lb.)

48.81$

52.85$

51.94$

5 5.54$

6.4

7.2

TURKEYS
W h o le sa le p rice - N ew Y ork,
8-16 lb. yo u n g hens ($/lb.)

97.31$

77.24$

65.83$

74.44$

-3 2 .4

-1 4 .3

CORN
W h o le sa le p rice - No. 2, ye llo w - St. Louis ($/bu.)

$ 2.75

$ 2.86

$ 2.84

$ 3.27

3.3

-4 .1

SOYBEANS
W holesale price - No. 1, yellow - Central Illinois ($/bu.)

$ 6.07

$ 6.04

$ 5.97

$ 7.15

-1 .6

-5 .1

$ 3.76

$ 3.76

$ 3.74

$ 3.80

-0 .5

-3 .6

$ 18.08

$18.00

$18.00

$ 1 8 .4 3

-0 .4

-2 .1

-1 4 .2

-1 .8

W HEAT
W h o le sa le p rice - No. 1, hard w in te r K ansas C ity ($/bu.)
LO N G -G R A IN RICE
W h o le sa le p rice - A rka n sa s ($/cw t.)
CO TTO N
A ve ra g e p ric e re ce ive d by U.S. F a rm e rs ($/lb.)

55.80$

52.10$

47.90$

6 5.47$

Percent Change
U.S. Exports
C orn (m il. bu.)
S oyb e a n s (m il. bu.)
W h e a t (m il. bu.)
R ice (rough e q u iva le n t, m il. cw t.)
C o tto n (thou, bales)

Oct
1984

Nov.
1984

Dec.
1984

A v e ra g e
for 1983

155.0
40.9
141.0
4.9
307.0

246.0
93.4
100.0
5.0
507.0

208.0
87.3
134.0
4.6
660.0

157.6
69.5
125.7
5.9
4 5 9 .7

1.9
-9 .2
-0 .5

0 .9 %
-1 7 .3
4 6 .2
20.8
67.9

$ 6 ,0 1 3
1,078

$6,502
1,345

$6,539
1,269

$5,851
1,277

20.2
2 1 .7

-2 7 .4
-3 3 .0

5,698
932

6,156
990

5,874
934

5,771
934

-2 .0
-6 .4

4.0
10.1

Y ear-To-D ate
19842
1 8 .1 %
17.2

Sam e Period
Year Ago

Receipts3
C R O P S (m illio n s of d o lla rs)
U n ite d S ta te s
D is tric t (se ve n -sta te total)
L IV E S T O C K (m illio n s o f d o lla rs)
U n ite d S ta te s
D is tric t (se ve n -sta te tota l)




3

Non Real Estate Farm Debt Outstanding
Banks
Outstanding
($ millions)
U.S.
E ighth D istrict5
A rkansas
K entucky
M issouri
Tennessee

$39,858
2,833
480
697
1,465
367

PC As4

Percent Change
12/83 - 12/84
12/82 - 12/84
2.3%
4.0
9.4
7.0
-2 .4
3.1

10.3%
16.6
20.7
14.0
5.5
5.5

Outstanding
($ millions)

Percent Change
12/83 - 12/84
12/82 - 12/84

$19,136
NA
361
442
395
396

- 7.3%
NA
-2 .3
-1 3 .8
-1 2 .3
-1 5 .6

-1 4 .0 %
NA
-9 .7
-2 9 .3
-1 6 .1
-2 5 .8

Agricultural Bank Loan Performance6
Percent of Overdue
Farm Loans at
Agricultural Banks
12/84
U.S.
Eighth D istrict5
A rkansas
Kentucky
M issouri
Tennessee

3.7%
5.0
3.6
3.7
5.4
7.1

12/83

Percent of Net Loan
Charge-Offs at
Agricultural Banks
12/82
2.7%
3.2
3.8
2.2
3.4
4.0

2.9%
2.9
2.5
3.1
3.3
3.2

12/84

12/83

12/82

1.34%
1.13
0.93
0.88
1.65
1.80

0.94%
0.83
0.64
0.88
1.02
1.50

.69%
.71
.57
.77
.75
1.20

Agricultural Production Loan Interest Rate7
PCAs

Banks

Eighth D istrict Average

2/85

2/84

12.5%

13.3%

1/85

1/84

12.9%

12.0%

1 The consumer price index components are seasonally adjusted. All other data are not seasonally adjusted.
2 Percent change from December of previous year, based on the most recent month available.
3 Data for receipts are seasonally adjusted by this Bank.
4 Source: Farm Credit Banks of Louisville and St. Louis, Farm Credit Administration.
5 Includes all of AR and parts of IL, IN, KY, MO, MS and TN.
6 Agricultural banks are defined as those with more than 25 percent of total loans in agricultural loans.
7 Interest rate data are for different dates. PCA rates are weighted averages for Arkansas and Missouri, not adjusted for stock purchase requirements.
Source: Farm Credit Banks of St. Louis.




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