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338.13
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.144
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WAITE MEMORIAL. BOOK COLLE
DEPT. OF AG AND APN
1994 BUFORD AVE. - 23
UNIVERSITY OF MINN
ST. PAUL M
FRB CHICAGO
?°: I 1111
AGRICULTURAL LETTER
FEDERAL RESERVE BANK OF CHICAGO
Number 1857
October, 1994
Farm debt edging upward
Recent estimates from the U.S. Department of Agriculture show farm debt rose about 2.4 percent last year.
The increase, though rather modest, was the largest
annual rise in over a decade. Moreover, updated reports from the major institutional lenders serving farmers
suggest this year's rise may be considerably larger. The
stronger gains this year probably stem from diverse
sources, including higher farm operating and capital
expenses, as well as lower cash earnings and carryover
effects from the adverse weather of last year.
•
The USDA's farm debt estimates pertain to the outstanding balance of loans used to finance the farm business.
Adjustments are made to subtract out the portion used to
finance the housing and the household-related expenses
of farm operator families. The latest estimates show
farm debt approximated $141.9 billion as of the end of
1993. The total included about $76.0 billion in outstanding loans secured by farm real estate. The remainder—$65.9 billion—is classified as nonreal estate farm
debt and represents a mixture of short-term farm operating loans and intermediate-term loans used to finance
farm expenditures not secured by real estate. In 1993,
the percentage growth in nonreal estate farm debt
slightly exceeded that for farm real estate.
By lender, the largest component of the farm debt is
owed to banks, 38.4 percent. The next largest share,
nearly 25 percent, is owed to the various entities that
make up the Farm Credit System (FCS). The share owed
to the Farmers Home Administration (FmHA) fell to
8.5 percent at the end of 1993 while the farm mortgage
financing activities of life insurance companies held
their share at 6.3 percent. The remaining share, 21.8
percent, is owed to a wide ranging category of lenders
labeled as individuals and others. In terms of changes
during 1993, the amount of farm debt owed to both
-banks and to individuals and others rose nearly 6 percent. For banks, last year's strong rise simply extended a
streak of rapid growth that has averaged 5 percent annually over the last 6 years. Since the rapid growth for
banks occurred during a period of continuing declines
for all other lenders combined, the share of farm debt
owed to banks has increased by 10 percentage points
over the last 6 years.
The bulk of last year's rise in farm debt apparently occurred during the second half of the year and may have
been tied mostly to adverse weather (drought in the
Southeast, floods in the Midwest). Quarterly reports
filed by banks show a much stronger-than-normal seasonal rise in their portfolio of farm loans in the third
quarter of 1993, followed by a smaller-than-normal
seasonal decline in the fourth quarter. Farmers hit by
the adverse weather of last year may have faced unusual
operating credit needs during the summer months.
Moreover, the ability of those farmers to repay farm
loans in the fourth quarter may have been undermined
by the weather-related crop losses that they suffered.
Farm debt by lender
billion dollars
200
150
100
50
•
0
1975
'78
'81
'84
*Life insurance companies.
Source: U.S. Department of Agriculture
'87
'90
'93
Evidence through the first half of this year shows the
abnormal seasonal patterns continued. The net paydown on farm loans at banks in the first quarter fell short
of normal and the seasonal rise during the second quarter proved much stronger than normal. In addition to
the weather-related factors, other developments have no
doubt contributed this year. For instance, larger crop
plantings this year, along with modest gains in prices
paid for such things as seed, fuel, fertilizer, and chemicals added to the operating credit needs of farmers.
Similarly, the demand for farm operating credit has expanded this year with larger inventories of livestock and
poultry and the shrinking income returns that have
trimmed equity financing options among livestock producers. In addition, the credit needs of farmers have
expanded this year with the continued strong gains in
Farm debt owed to banks in District states
index, 1987=100
160
IA /
80
1983
'85
'87
'89
'91
'93
Source: U.S. Department of Agriculture.
farmer purchases of machinery and equipment and the
construction of large hog production facilities in some
areas. Finally, somewhat stronger gains in farmland
values and reports of increased real estate activity suggest that long-term borrowings to finance real estate
purchases have also registered gains this year.
In line with these developments, mid-year reports show
the portfolio of farm loans at banks nationwide was up
9 percent from a year ago. That overall rise encompassed a gain of nearly 11 percent for nonreal estate
farm loans at banks and a rise of 6.5 percent for loans
secured by farm real estate. Preliminary mid-year readings for the Farm Credit System show a year-over-year
rise of over a tenth in their portfolio of loans that contains mostly nonreal estate farm loans and virtually no
change among loans mostly secured by farm real estate.
Mid-year reports for life insurance companies show
their farm mortgage loans are about unchanged from the
year-ago level.
The pattern of changes in farm loan portfolios at banks
in District states has varied considerably in recent years.
During the five years ending with 1993, for example,
the change in farm loan portfolios among banks in the
five District states ranged from a nominal rise of only 1
percent in Michigan to a surge of more than 43 percent
among banks in Iowa. The five-year growth rates in
farm loans at banks in the other three District states
were 25 percent for Wisconsin, 22 percent for Illinois
and 11.5 percent for Indiana. The overall growth for
banks in the five state region was 27 percent, only 1
percentage point less than the five-year increase for
banks nationwide.
The reasons for the lack of growth in farm loan portfolios among banks in Michigan, and the comparatively
slow growth among Indiana banks, are not clear. However, the slow growth for those two states was not
unique when compared to the performance of banks in
some of the other top 25 agricultural states (ranked in
terms of cash receipts from farm commodity sales). For
instance, the amount of farm loans held by banks in
New York actually declined 2 percent during the five
years ending with 1993 while the five-year growth rates
for banks in four other states (Colorado, Ohio, Pennsylvania, and Texas) fell short of that recorded for Indiana
banks. And despite the slow growth in farm loans at
banks in Michigan and Indiana, the available evidence
indicates that the share of total farm debt owed to banks
in those two states still edged higher. Among District
states, the share of farm debt owed to banks ranges from
a low of 24 percent in Michigan to a high of nearly 50
percent in Illinois. The bank share of farm debt for Illinois ranks the fourth highest among the top 25 agricultural states, while the bank share in Michigan ranks the
lowest.
•
Gary L. Benjamin
Hogs numbers expanding
The USDA's quarterly Hogs and Pigs report indicated
that the number of hogs on U.S. farms totaled 61.6
million head as of September 1. This is 4 percent more
than a year earlier and 2 percent above the level of two
years ago. The growth was led by sharp gains in North
Carolina and Missouri. In comparison, the combined
increase was considerably more restrained among the
five states that comprise the Seventh Federal Reserve
District. The expansion will translate into the continued growth of pork production through the fall and
winter months and add to the already ample supplies of
red meat. Barrow and gilt prices, which slid markedly
in recent weeks, are expected to remain under pressure
through the remainder of the year.
The USDA's quarterly survey indicated the number of
hogs on farms was pushed higher by the largest JuneAugust pig crop since 1979. The number of pigs born
and raised totaled nearly 25.5 million head, 6 percent
more than that of a year earlier. The gains stemmed
from an increase in both the number of sow farrowings
and the number of pigs saved per litter. The number of
sows delivering pigs from June through August was up
4 percent from the previous year, while the number of
pigs saved per litter rose 2 percent. A portion of the
continuing growth in pigs per litter reflects the substantial difference that exists between small hog operations
and the larger enterprises that are gathering an increasing share of U.S. pork production. Hog operations with
less than 100 head averaged 7.3 pigs saved per litter
during June through August, while operations with over
2000 hogs averaged 8.7 pigs saved.
•
Hog prices
September 1, with North Carolina and Missouri again
recording the largest gains. The North Carolina herd
dollars per cwt.
increased almost a third in size while Missouri posted a
70
year-over-year
gain of 14 percent. Together, these two
Range, 1988-92
states accounted for over 80 percent of the net expansion in hog numbers outside Seventh District states.
60
Furthermore, the farrowing intentions disclosed by the
USDA report indicate that any growth in hog numbers
over the next 6 months (September-February) is destined
50
_,,,,
■
.....-..... ..• ....
to come from outside District states. Non-District states
1993
are expected to increase the number of sow farrowings
■
by 8 percent from a year earlier. In comparison,
40
farrowings in District states are projected to fall slightly.
19\
4The number of sow farrowings in Indiana is anticipated
I
I
1
I
I
I
1
[
[
1
to increase 6 percent, but will be more than offset by
30
J F M A M J J AS 0 N
reductions in each of the other four states.
Source: U.S. Department of Agriculture.
Both the number of breeding hogs and market hogs
registered year-over-year gains. Market hogs tallied
54.2 million head, a rise of 5 percent. Each of the four
weight categories logged an increase. The number of
smaller hogs—weighing less than 60 pounds—rose
slightly more than 5 percent from a year ago. The number of hogs in the 60 to 119 pounds bracket increased
4 percent, as did those weighing from 120 to 179
pounds. The inventory of heavier hogs-180 pounds or
more—climbed 5 percent from a year ago. Furthermore, the number of breeding hogs on farms rose 4
percent and represents largest September 1 count since
1988. In accordance with the increase in the number of
breeding animals, farmers also reported they intend to
expand sow farrowings 4 percent during the six-month
period stretching from September through February
when compared to the previous year.
The states within the Seventh Federal Reserve District
made only a minor contribution to the current expansion. The combined June-August pig crop in Illinois,
Indiana, Iowa, Michigan, and Wisconsin was up only 1
percent from a year ago. The number of sow farrowings
in District states actually posted a slight decline but was
counterbalanced by more pigs saved per litter. Similarly, the total number of hogs in District states posted a
small gain. However, the changes in hog inventory
were mixed among the individual District states. The
number of hogs in Indiana rose 5 percent, fueled by a
sharp increase in the summer pig crop. The Michigan
herd was up 4 percent from the prior year while the
number of hogs in Iowa added up to an increase of
1 percent. In contrast, the tally of hogs in Illinois and
Wisconsin declined 3 percent and 7 percent, respectively, from a year earlier.
The current expansion proceeded at a much more rapid
pace outside District states. Hog numbers in the rest of
the U.S. were up 8 percent from a year earlier as of
Pork production held close to the level of the previous
year during the first half, then registered a year-over-year
gain of 4 percent in the third quarter. The current inventory numbers and farrowing intentions suggest that these
recent gains will continue through the end of the year
and into 1995. The inventory of hogs weighing from
60 to 179 pounds—most of which will be marketed
before the end of the year—portends a fourth-quarter
increase of 3 to 4 percent. The number of hogs weighing less than 60 pounds as well as the historical relationship between the June-August pig crop and hog
marketings suggest the year-over-year gains in pork production could widen in the first quarter of next year. In
addition, the increase in farrowing intentions for September through February suggests that year-over-year gains
in pork production will continue through mid 1995.
Barrow and gilt prices at Iowa-Southern Minnesota
markets were stable for much of the spring and summer
but weakened markedly in September. Prices generally
remained between $41 and $44 per hundredweight
from April though August, but for September averaged
only $36 per hundredweight. This was the lowest
average of any month since 1980 and the lowest for
September since 1974. As of mid October, prices had
slipped even further. In general, the setback stemmed
from a seasonal rise in hog marketings as well as stiff
competition from increased supplies of beef and poultry.
Prices are expected to level off and perhaps post a seasonal increase near the end of the year. The USDA's
current projection pegs the average fourth-quarter barrow and gilt price at $35 per hundredweight, nearly one
fourth below the level recorded last year. Though recent
forecasts of a record corn and soybean harvest indicate
there will be ample supplies of modestly-priced feed in
the coming year, the recent decline in hog prices may
well lead farmers to curb their expansion plans in the
months ahead.
Mike A. Singer
Selected agricultural economic indicators
Percent change from
Latest
period
Value
Prior
period
Year
ago
Prices received by farmers (index, 1977=100)
Crops (index, 1977=100)
Corn ($ per bu.)
Hay ($ per ton)
Soybeans ($ per bu.)
Wheat ($ per bu.)
September
September
September
September
September
September
134
122
2.09
82.40
5.31
3.60
-2.2
-0.8
-3.2
-0.8
-4.8
10.8
-8
-5
-5
5
-14
16
-4
4
-3
19
-1
13
Livestock and products (index, 1977=100)
Barrows and gilts ($ per cwt.)
Steers and heifers ($ per cwt.)
Milk ($ per cwt.)
Eggs (0 per doz.)
September
September
September
September
September
146
36.40
66.70
12.70
60.5
-2.7
-14.8
-2.3
1.6
1.0
-9
-25
-10
-1
9
-8
-15
-12
-6
2
September
September
149
145
0.3
0.1
3
3
6
5
-60
-28
-3
7
7
3
-23
-25
-3
12
8
2
Consumer prices (index, 1982-84=100)
Food
Production or stocks
Corn stocks (mil. bu.)
Soybean stocks (mil. bu.)
Wheat stocks (mil. bu.)
Beef production (bil. lb.)
Pork production (bil. lb.)
Milk prbduction* (bil. lb.)
N.A.
N.A.
N.A.
9.3
15.4
-3.5
Two years
ago
September 1
September 1
September 1
August
August
September
850
209
2,053
2.22
1.49
10.5
Receipts from farm marketings (mil. dol.)
Crops**
Livestock
Government payments
May
May
May
May
12,766
4,739
7,292
735
-5.7
-6.0
1.9
-45.0
-6
0
-7
-24
2
7
0
1
Agricultural exports (mil. dol.)
Corn (mil. bu.)
Soybeans (mil. bu.)
Wheat (mil. bu.)
July
July
July
July
3,148
93
17
73
-4.5
7.6
-36.2
-4.1
2
2
-60
-32
-4
-36
-60
-28
Farm machinery sales (units)
Tractors, over 40 HP
40 to 100 HP
100 HP or more
Combines
September
September
September
September
15.1
-4.0
66.8
24.3
5,013
3,051
1,962
777
26
11
61
3
N.A. Not applicable
*21 selected states.
**Includes net CCC loans.
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