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Agriculture
AN EIGHTH DISTRICT PERSPECTIVE
SPRING 1987

Rural and Agricultural Banks: A Performance Update
The episode termed as the farm sector recession is now
in its sixth year. Sharp declines in real farm income have
dragged down the values of farm assets pledged as collateral
for farm loans. Normally, collateral serves as a cushion for
the lender should a borrower default on a loan. The declines
in farm asset values have been so severe in many parts of
the country, however, that the process of foreclosure and
sale of acquired property still has produced losses for farm
lenders.
In this issue, we update the condition of rural and
agricultural banks in the Eighth Federal Reserve District
relative to their counterparts nationally. Some analysts claim
that rural banks, regardless of their direct lending to farmers,
have been affected adversely by the general recession in rural
areas. The argument is that, as farm incomes fell, farmers
bought fewer goods and services in their local communities,
which caused subsequent declines in the incomes of rural
merchants and less spending on their part. Agricultural
banks, of course, are said to be experiencing higher loan
losses and lower earnings as a direct result of the
deteriorating quality of farm loans.

Table 1 (on page 2), which shows data for the most recent
three years, indicates contrasts across years and type of
institution. Nationally, the number of problem banks is up
4.5 percent over 1985 and 32.8 percent over 1984, while the
percentage of the total represented by rural banks is down
slightly, from 58 percent in 1984 to 50 percent as of
December 31, 1986.
At the District level, however, conditions have improved.
The number of problem banks is 21, down from 42 in 1984
and the lowest figure since 1982. The share represented by
rural banks remains near 90 percent, however, as it has
historically. Not only have the District numbers shown
improvement in recent years, problem banks in the Eighth
District still represent only 1.6 percent of all District banks,
whereas 6.1 percent of all banks nationally are problem
banks.

Agricultural Banks

Examining the problem banks in table 1 in terms of their
exposure to agricultural loans produces more diversity
between national and Eighth District performance. If an
agricultural bank is defined as one which has 25 percent
or more of its total loans as loans to farmers, the lower
Problem Banks
portion of table 1 indicates that absolute numbers of problem
A primary criterion by which to analyze bank performance
farm banks nationally and their share of all problem banks
is the likelihood of survival. With this in mind, problem
(26 percent) are down somewhat from the 1985 values. While
banks can be defined as those for which the value of pastthe number of problem farm banks in the Eighth District
due and nonperforming loans exceeds the sum of total bank
also fell, from 15 to eight, their share of the total changed
capital and loan loss reserves. The latter two items represent
little.
the resources of a bank to absorb loan losses. Using this
Changing the definition of an agricultural bank to one that
comparison, if all loans currently delinquent were written
has 17 percent or more of its loans in farm loans does not
change the percentage shares of the table in
off, loan losses would exceed bank equity and
an appreciable manner. The implication of
the banking firm would be insolvent. This
the table is that the number of problem banks
definition of “problem banks” should not be
is increasing nationally but that agricultural
confused with the technically more complex
THE
banks
reflect a smaller share of that general
ratings used by the three bank regulators.
FEDERAL
RISERM.
trend. In the District, however, it appears as
Moreover, it should be noted that this is a
RAN K of
if conditions at both agricultural and
very severe criterion since it assumes the
ST m i IS
nonagricultural banks have improved
bank would recover nothing from a
somewhat.
foreclosure action and sale of acquired assets.




SPRING 1987

FEDERAL RESERVE BANK OF ST. LOUIS

Table 1
Problem Banks: The United States vs. Eighth District
December 31, 1986
Number

Percent

December 31 , 1984

December 31, 1985
Number

Percent

Number

Percent

R U R A L VS. U R B A N BANKS
U .S. P roblem Banks
R u ra l1
U rban
TOTAL
D istrict Problem Banks
R u ra l1
U rban
TOTAL

425
429

50%
50

465
352

57%
43

376
267

58%
42

854

100

817

100

643

100

19
2

90
10

31
6

84
16

37
5

88
12

21

100

37

100

42

100

224
630

26
74

268
549

33
67

205
438

32
68

854

100

817

100

643

100

8
13

38
62

15
22

41
59

11
31

26
74

21

100

37

100

42

100

A G R IC U L T U R A L VS.
N O N A G R IC U L T U R A L BANKS
U .S. Problem Banks
(A gricultural L oan Ratio)
G reater T han 25%
Less Than 25%
TOTAL
D istrict Problem Banks
(A gricultural Loan Ratio)
G reater T han 25%
Less T han 25%
TOTAL

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

Bank Earnings
Another item that indicates bank performance is
earnings, which typically is measured as the return on
equity (ROE) or return on assets (ROA). Data for small
banks (less than $50 million in assets), presented in table
2, tend to reaffirm what has been shown above. Small
Eighth District banks appear to be in better financial
condition than small banks generally and have shown less
variation in earnings in recent years. Especially notable
is the steady downward trend in earnings nationally, both
at agricultural and nonagricultural banks. In contrast,
earnings at comparable District banks have been nearly
constant, with the exception of a dip at nonagricultural
banks in 1986.
—Michael T. Belongia and Kenneth C. Carraro

Table 2
Returns on Equity and Assets at Small Banks
(less than $50 million in assets)
1986
U N IT E D STA T E S
N onagricultural B anks1
ROE
ROA
A gricultural Banks
ROE
RO A
E IG H T H D IST R IC T
N onagricultural B an k s1
ROE
RO A
A gricultural Banks
ROE
RO A

1985

1984

1.3%
0.1

4.1%
0.4

5.8%
0.5

5. 1
0 .4

5 .7
0 .5

8 .0
0 .7

5 .5
0 .5

8 .0
0 .6

8 .6
0 .7

8 .4
0 .7

8 .9
0 .8

8 .9
0 .8

'Nonagricultural banks have less than 5 percent of total loans as agricultural loans.
All figures are based on end-of-year data.
Agriculture—An Eighth District Perspective is a quarterly summary of agricultural conditions in the area served by the Federal Reserve Bank
of St. Louis. Single subscriptions are available free of charge by writing: Research and Public Information Department, Federal Reserve Bank
of St. Louis, P.O. Box 442, St. Louis, Missouri 63166. Views expressed are not necessarily official positions of the Federal Reserve System.

2 FRASER
Digitized for


FEDERAL RESERVE BANK OF ST. LOUIS

SPRING 1987

EIGHTH DISTRICT AGRICULTURAL DATA
Percent Change
Dec.
1986

Prices and Costs1
C O N S U M E R P R IC E IN D E X
N o nfood
Food

Jan.
1987

Feb.
1987

Average
for 1986

Year-To-Date
19872

Same Month
Year Ago

0 .9 %
2.1

1 .6 %
5.0

(% chan g e )

P R O D U C T IO N C O S T S FO R F A R M E R S (% cha n g e )
A g ric u ltu ra l m a c h in e ry and e q u ip m e n t
M ixe d F e rtilize rs
O th e r A g ric u ltu ra l c h e m ic a ls
G a so lin e

0 .1 %
0.1

0 .5 %
1.6

0 .4 %
0.4

0 .0 %
0.3

0.4
-1 .0
-0 .8
9.9

0.1
3.5
-1 .5
6.2

0.1
-0 .3
0.5
-4 .3

0.5
2.4
-2 .3
16.6

-2 .4

0.0

0.0

-2 .8
-3 .9

0.7

0.0

1.4
-2 .0

-0 .5
0.3
-1 .4

2.1
-2 .0

-0 .8
8.3
-1 1 .8

FE E D E R C A T T L E
W h o le sa le p rice - K an sa s C ity ($/cw t.)

$65.00

$69.00

$71.38

$ 6 2 .3 4

9.8

14.4

F E E D E R PIG S
W h o le s a le p ric e - So. M isso u ri ($/head)

$47.69

$47.00

$53.96

$45.61

13.2

4 4 .8

1.7

P R IC E S R E C E IV E D BY F A R M E R S (% ch a n g e )
A ll p ro d u c ts
L ive sto ck
C ro p s

-0 .1

0.0
0.2
1.5

0.0

0.9
-1 .0

0.0
-2 2 .0

B R O IL E R S
W h o le s a le p rice - 12-city ($/lb.)

49.95$

51.77$

49.80$

56.90$

-0 .3

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

68.24$

53.58$

N.A.

71.92$

-2 1 .5

-1 1 .1

CORN
W h o le s a le p rice - No. 2, y e llo w - St. Louis ($/bu.)

$ 1.69

$ 1.61

$ 1.57

$ 2.08

-7 .1

-3 7 .2

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

$ 4.96

$ 4.98

$ 4.89

$ 5.23

-1 .4

-9 .1

W HEAT
W h o le s a le p rice - No. 1, hard w in te r K ansas C ity ($/bu.)

$ 2.68

$ 2.70

$ 2.80

$ 2.93

4.5

-1 5 .2

$11.88

$11.88

$11.88

$ 1 3 .7 8

0.0

- 3 1 .1

-1 4 .4

-1 7 .8

LO N G -G R A IN R IC E
W h o le s a le p ric e - A rka n sa s ($ /cw t.)
CO TTO N
A v e ra g e price re ce ive d by U.S. F a rm e rs ($/lb.)

54.70$

51.00$

46.80$

5 4.72$

Percent Change
U.S. Exports
C o rn (m il. bu.)
S o yb 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)




Dec.
1986

Jan.
1987

Feb.
1987

Average
for 1986

111.0
88.2

104.0
71.3
76.7
N.A.
612.5

N.A.
N.A.
N.A.
N.A.
N.A.

89 .8
6 5 .3
82.1
5.9
2 5 2 .4

58.1
4.6
543.7

Year-To-Date
19872
- 6 .3 %
-1 9 .2
3 2 .0
N .A.
12.7

Same Period
Year Ago
-3 7 .4 %
-1 5 .8
2.3
N.A.
229.3

3

Non-Real-Estate Farm Debt Outstanding
Banks
Outstanding
($ millions)

u.s.
E ig h th D is tric t1
4
3
2
A rka n sa s
K e n tu c k y
M isso u ri
T e n n e sse e

$ 3 1 ,2 7 8
2 ,312
401
562
1,066
281

PCAs3

Percent Change
12/84 - 12/86
12/85 - 12/86
-1 1 .9 %
-6 .8
-1 .1
-4 .1
- 1 3 .1
-1 3 .2

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

Outstanding
($ millions)

Percent Change
12/84 - 12/86
12/85 - 12/86
-2 1 .4 %
NA
-2 4 .5
-2 5 .8
-3 0 .2
-1 8 .4

$11 ,1 8 4
NA
185
200
188
211

-3 7 .6 %
NA
-4 8 .8
-5 4 .7
-5 2 .3
-4 6 .6

A gricultural B ank Loan P e rfo rm a n c e 5

Percent of Total Loans
Written Off at
Agricultural Banks

Percent of Farm Loans
Overdue at
Agricultural Banks

U .S.
E ig h th D is tric t4
A rk a n s a s
K e n tu c k y
M isso u ri
Tennessee

12/86

12/85

3 .4 %
4.5
1.7
4.0
4.5
2.8

5.5
5.3
4.7
6.7
6.0

12/84

4 .2 %

3 .7 %
4.9
3.4
3.7
5.4
7.1

12/86

12/85

12/84

2 .5 0 %
1.80
1.33
1.34
2.39
1.73

2 .4 7 %
1.97
1.28
.96
3.01
1.65

1 .3 9 %
1.19
.93
.91
1.67
1.80

Agricultural Production Loan Interest Rate6
PCAs

Banks

E ig h th D is tric t A v e ra g e

2/87

2/86

1 0 .0 %

1 1 .8 %

3/87

3/86

1 1 .0 %

1 2 .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 Source: Farm Credit Banks of Louisville and St. Louis, Farm Credit Administration.
4 Includes all of AR and parts of IL, IN, KY, MO, MS and TN.
5 Agricultural banks are defined as those with more than 25 percent of total loans in agricultural loans.
6 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