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2i.9
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Federal reserve Dant' of Chicago -

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May 10, 1968
DEMAND FOR FARM LOANS will be strong at Midwest banks for the next few months. This was the consensus
of country bankers responding to a recent survey of credit
conditions in the Seventh Federal Reserve District.
The volume of non-real estate loans to farmers rose
about 9 percent last year, apparently reflecting greater outlays
associated with larger crop production. This strong demand for
credit apparently continued through the first quarter of1968.
More than half the bankers responding to the survey reported
increased loan demand from farmers. Only 6 percent indicated a slackening in demand.
Part of the increased loan volume doubtlessly resulted
from farmers carrying over old loans while seeking additional
new credit. A smaller proportion of bankers reported increased renewals and extensions of loans than in January.
Nevertheless, more than half reported loan renewals higher
than a year before. Moreover, nearly two-fifths reported that
the rate of loan repayment was lagging behind that of a year
ago. These developments have been associated with difficulties in harvesting, storing, and marketing last year's record corn
crop.

Number 960
Industrial Equipment Institute reports retail tractor sales in
the district well below year-ago levels. Loan demand from
dairy farmers will also probably be weaker in many areas.
According to most bankers, adequate funds are available
to handle farm credit needs, despite the increased demand.
Deposits in "agricultural" banks have increased sharply since
last year, despite lower farm incomes. Demand deposits at
these banks were about 4 percent higher in March than a year
before. Time deposits were about 14 percent higher.
Deposits at "Agricultural" Banks Rise*

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Smaller production is expected this year, however. The
nation's farmers indicated in early March that they intended to
plant about 8 percent fewer acres of corn. If so, this will be
the smallest corn crop since before the turn of the century.
Acreage is expected to be down 12 percent in Iowa,9 percent
in Indiana and 6 percent in Illinois.
Bankers in the district nevertheless expect lending to be
more active in the second quarter than it was a year before.
Despite cutbacks in production, nearly half the bankers foresee increased demand for farm loans. Most of the others expect demand to reach at least the high level of last year. These
are larger proportions expecting increased lending activity than
in the previous year.
Much of the increase will result from stronger demand
for general operating credit. Nearly three-fifths of the bankers
expect a stronger demand for this purpose. This opinion
apparently reflects the higher price tags on many important
production items and the need for larger purchases of some
items. Both factors point to a further rise in farm production
costs. Nationally, outlays for farm production expenses may
rise 4 percent or more from last year's record level.

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Demand for loans to buy feeder cattle will probably
not change much. Feeder cattle prices are about the same
level as last year, as is the level of feeding activity. Demand for
credit to finance purchases of farm machinery may even be
down some. Prices of machinery are higher, but the Farm and

Increase
March 1967-1968
Demand
Time
(percent)

Illinois
Indiana
Iowa

Michigan
Wisconsin
Seventh District

3
3
4
7
1
4

13
13
17
10
14
14

*Agricultural banks are those in which farm loans account for a
relatively large proportion of total loans and are located in towns of
less than 15,000 population.

Interest charges on farm loans are edging up again, reflecting the strong public and private demand for credit. None
of the bankers responding to the survey in early April thought
interest rates would be lower in the second, quarter. More than
90 percent of them were charging rates of 6.5 percent or more
on feeder cattle loans, and about 40 percent were charging 7
percent or more. These proportions were higher than at the
beginning of the year or a year ago.
Rate differences continued to follow about the same
geographical distribution as last year. The lowest rates were in
the main cattle feeding areas of Illinois and Iowa. Rates were
considerably higher on the periphery of the cattle feeding areas
and outside the heart of the Corn Belt.
Roby L. Sloan
Agricultural Economist