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May 19, 1989 District credit conditions Responses from bankers concerning agricultural credit conditions across the Seventh Federal Reserve District indicated little change in the trends that have characterized the last several quarterly surveys. The bankers point to continued strong farm loan demand during the early months of 1989 and ample funds for lending to farmers. Interest rates charged on farm loans continued to move higher and loan repayment rates appear to have slowed somewhat. The bankers expect lending volume to continue to register year-to-year gains during the spring months, as farmers demand additional credit to finance their operations. Farm loan demand at District agricultural banks strengthened throughout 1988 and continued to improve during the first three months of this year. The first quarter measure of farm loan demand jumped to 138, equaling the highest level recorded during the 1980s. The most recent measure reflects the composite of almost half of the respondents who reported stronger farm loan demand during the first quarter less the 11 percent who reported a decline compared to a year earlier. The remaining 39 percent of the respondents reported that farm loan demand at their banks remained at the same level as a year ago. The recent strength in farm loan demand at District agricultural banks reflects a number of factors. Farmers adversely effected by the drought boosted the demand for credit. In addition, the increases in planted acreage this year, along with increasing input costs contributed to increased demand for commercial credit. Farm loan demand remained strong across all of the District states. The composite measures were highest in Illinois and Iowa, where a majority of bankers reported increased demand compared to last year. Responses from Indiana bankers yielded a measure of farm loans demand comparable to the District average, while the measures were somewhat lower in Michigan and Wisconsin. L The uptrend in farm loan demand that has been recorded since last year has begun to temper the very high measures of fund availability recorded throughout the 1980s. Nevertheless, 26 percent of the survey respondents indicated that the funds available for lending to farmers had increased from last year, while https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Number 1760 less than 11 percent indicated a drop from the yearearlier level. The remaining 63 percent of the bankers reported no change in the amount of funds available for lending to farmers compared to a year ago. The measure of fund availability remained high across the District states, ranging from 121 in Iowa to 109 in Illinois. The increases in farm loan demand over the past year along with the downtrend in the measure of fund availability have been reflected in a rising average loan-to-deposit ratio at District agricultural banks. Loan-to-deposit ratios across the District have been trending higher since 1987. The ratio averaged 53.8 percent at the end of the first quarter and was more than 3.5 percentage points higher than a year earlier. Following a historical pattern, agricultural banks in Illinois and Iowa reported loan-to-deposit ratios below the District average. At just under 50 percent, however, the average ratios were up from year-earlier levels. Michigan bankers, on the other hand, reported an average ratio of loan-to-deposits of almost 67 percent, while Indiana and Wisconsin responses indicated average ratios of about 61 percent. In comparison to the current levels, loan-to-deposit ratios in 1979 ranged from 63 percent to 72 percent. Although a substantial increase in loan-to-deposit ratios has been recorded since early 1987, a large majority of the survey respondents expressed preferences for still higher ratios. More than two-thirds of the bankers indicated that their current loan-to-deposit ratio was below the desired level, while only about 10 percent indicated it was too high. The remaining 22 percent of the survey respondents indicated that their current loan-to-deposit ratio was at the desired level. For the District as a whole, the average of the surveyed bankers' desired loan-to-deposit ratios was almost 61 percent, about 7 percentage points higher than District average at the end of the first quarter. Among the individual District states the desired ratio of loan-todeposits ranged from an average of about 56 percent in Illinois to more than 69 percent among Michigan banks. Interest rates on loans to farmers, which have been rising steadily for the past two years, recorded a substantial jump during the early months of 1989. The rates reported for feeder cattle loans and for farm operating loans at the end of March averaged 12.4 per- Selected measures of credit conditions at Seventh District agricultural banks 1979 Jan - Mar Apr-June July-Sept Oct-Dec 1980 Jan - Mar Apr-June July-Sept Oct-Dec 1981 Jan-Mar Apr-June July-Sept Oct-Dec 1982 Jan - Mar Apr -June July-Sept Oct-Dec 1983 Jan-Mar Apr-June July-Sept Oct-Dec 1984 Jan-Mar Apr -June July-Sept Oct-Dec 1985 Jan-Mar Apr-June July-Sept Oct-Dec 1986 Jan-Mar Apr-June July-Sept Oct-Dec 1987 Jan-Mar Apr-June July-Sept Oct-Dec 1988 Jan-Mar Apr-June July-Sept Oct-Dec 1989 Jan-Mar Banks w ith loan -to -deposit ratio above desired level 1 Average rate on feeder cattle loans 1 Average loan-to-deposit ratio 1 (percent) (percent) (percent of banks) Loan demand Fund availability Loan repayment rates (index) 2 (index)2 (index) 2 156 147 141 111 51 62 61 67 85 91 89 79 10.46 10.82 11 .67 13.52 67 .3 67 .1 67.6 66.3 58 55 52 48 85 65 73 50 49 108 131 143 51 68 94 114 17.12 13.98 14.26 17.34 66.4 65.0 62.5 60.6 51 31 21 17 70 85 66 66 141 121 123 135 90 70 54 49 16.53 17.74 18.56 16.94 60.1 60.9 60.9 58.1 17 20 21 17 76 85 87 74 134 136 136 151 36 41 36 47 17.30 17.19 15.56 14.34 57.8 57.3 57.8 55.1 18 14 15 11 69 85 81 101 158 157 156 153 66 78 78 78 13.66 13.49 13.70 13.65 53.3 54.0 54.8 53.6 6 6 8 8 131 138 120 103 135 128 122 124 62 64 59 49 13.82 14.32 14.41 13.61 54.4 55.7 57.2 55.9 12 14 17 19 107 105 90 68 120 133 127 144 47 56 59 97 13.48 12.93 12.79 12.70 56.1 55.1 55.5 52.7 17 14 14 10 74 65 68 61 149 152 146 153 80 86 87 107 12.34 11 .81 11 .31 11 .06 50.9 51.1 51.4 49.4 8 6 6 3 71 75 75 78 149 140 136 142 118 118 134 145 10.88 10.98 11 .22 11 .22 48.8 50.5 51 .5 50.3 5 6 7 5 102 113 120 127 137 127 115 123 143 114 88 87 11 .02 11 .17 11 .61 11 .91 50.2 52.1 54 ,3 53.3 4 6 8 8 138 115 84 12.47 53.8 11 1 At end of period. 2 Bankers responded to each item by indicating whether conditions during the current quarter were higher, lower, or the same as in the year-earlier period . The index numbers are computed by subtracting the percent of bankers that responded "lower" from the percent that responded " higher" and adding 100. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ) cent, nearly 60 basis points above the year ending 1988 rates and 1.5 percentage points higher than a year earlier. It was the largest quarterly jump since the rise in rates began in early 1987. The range in rates charged on these loans continued to span almost a full percentage point across the District states. Michigan banks reported the highest rates, at almost 13.2 percent, while Wisconsin banks reported average rates on feeder cattle and operating loans of almost 12.2 percent, lower than any of the other District states. Rates on farm real estate loans continued to climb during the first quarter. At 11.7 percent, the average rate charged by District agricultural banks was up more than 40 basis points from the end of last year and more than 1.4 percentage points above the cyclical low recorded in the spring of 1987. As has been the case in the last few quarterly surveys, farm mortgage loan rates were lowest in Iowa and Wisconsin, averaging less than 11.6 percent. In contrast, the highest mortgage rates were reported in Michigan, where bankers' responses averaged almost 12.4 percent. Rates were up from three months earlier in each of the District states. Farm loan repayment rates, after showing strong improvement throughout 1987 and early 1988, have remained sluggish during the past three quarterly surveys. At 84, the first quarter measure of loan repayment rates is down slightly from the previous quarter. The measure reflects the 11 percent of the survey respondents who noted that repayments had improved compared to year earlier, less the 27 percent who noted deterioration in repayments. The remaining 62 percent of the bankers indicated the farm loan repayment rates were comparable to year-earlier levels during the first three months of 1989. Among individual District states, measures of repayment rates varied considerably. Bankers in the District portion of Illinois reported the lowest measure at 66, but more than half reported no change from the strong repayment rates of a year earlier. The measures of repayment rates in Indiana, Iowa, and Wisconsin ranged from 85 to 95, with substantial majorities reporting no change compared to the first quarter of 1988. Michigan bankers reporting weakening loan repayment rates about equaled those reporting improvements, with 70 percent noting no change from last year. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Credit demand at District agricultural banks is expected to strengthen further during the second quarter. Fewer than 9 percent of the survey respondents foresee a drop in the volume of nonreal estate farm lending compared to the same months last year, while more than half of the bankers expect nonreal estate farm lending to be greater. The remaining 40 percent indicated that at their institutions nonreal estate lending to farmers would equal the year-earlier level during the second quarter. Increased operating loans account for most of the continued strengthening in demand. Almost two-thirds of the respondents anticipate higher operating loan volume compared to last year, with only about six percent expecting a decline. Large majorities of the surveyed bankers predict that feeder cattle, dairy, and crop storage loans will remain at year-ago levels this spring, but very few expect to see any increases. Moreover, the proportions expecting declines in volume for these types of loans exceed significantly those expecting increases. Farm machinery lending is an exception, with more than 37 percent of the respondents indicating that volume is likely to be up from a year ago during the second quarter and only 14 percent expecting a drop. Farm real estate lending at District agricultural banks is also expected to continue expanding during the second quarter. About 29 percent of the surveyed bankers expect the volume of real estate lending at their institutions to exceed year-ago levels, while only 15 percent foresee a decline in farm real estate loan volume during the spring months. The remaining majority of the respondents indicate that farm mortgage volume will hold at the year-earlier level. Peter J. Heffernan AGRICULTURAL LETTER (ISSN 0002-1512) is published bi-weekly by the Research Department of the Federal Reserve Bank of Chicago. It is prepared by Gary L. Benjamin, economic adviser and vice-president, Peter J. Heffernan, 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 Tel.no. (312) 322-511J Selected Agricultural Economic Indicators Percent change from Receipts from farm marketings ($ millions) Crops* Livestock Government payments Latest period Value January January January January 14,190 6,717 7,143 330 Prior period Year ago Two years ago 4.2 -3.4 15.1 -29.5 4 5 8 - 51 2 4 16 -75 Real estate farm debt outstanding ($ billions) Commercial banks Farm Credit System Life insurance companies December 31 December 31 December 31 14.2 28.0 9.01 t 0.4t -2.6t 2.8 7 -6 -2 22 - 20 -12 Nonreal estate farm debt outstanding ($ billions) Commercial banks Farm Credit System December 31 December 31 28.3 8.64 t -3.1 t - 5.7 3 -7 -18 April 1 April 1 May 12.53 11.70 9.50 t 4.7t 3.8 0.0 13 12 38 15 14 52 February February February February 3,470 158 57 134 3.4 -10.4 -14.7 11 .4 10 27 -41 -9 56 59 - 23 86 April April April April 6,789 4,427 2,362 368 22.0 16.2 34.7 16.1 32 16 81 102 52 23 170 115 Interest rates on farm loans (percent) 7th District agricultural banks Operating loans Real estate loans Commodity Credit Corporation Agricultural exports ($ millions) Corn ( mil. bu.) Soybeans (mil. bu.) Wheat (mil. bu.) Farm machinery salesP (units) Tractors, over 40 HP 40 to 139 HP 140 HP or more Combines -5 ;includes net CCC loans. Prior period is three months earlier. PPreliminary cB=dll:!~~~~~tte~~tf~-r;r~~ Public Information Center P.O. Box 834 Chicago, Illinois 60690 (312) 322-5111 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis J)I
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