Farm Loan Growth is Driven by Leaner Profits

The Federal Reserve Bank of Kansas City just released their latest Agricultural Finance Databook and as expected lower farm profits are leading to increased demand for operating loans.  However, some of this increase is also due to the rapid increase in livestock prices during 2014 which results in greater operating loans just to service the same number of livestock.  Here are some of the key points from the release:

• Operating loan volume in the last quarter reached at least a five-year peak at about $49 billion.  The lowest volume in the last five years was during 2012 at about $32 billion.
• Livestock loan volume rose from about $16 billion at the beginning of the year to over $21 billion in the last quarter.  Back in 2009, the average loan was about $100 per head, it is now over $235 per head.
• Peak equipment loan demand was in 2012 (as expected record net income required record equipment purchases to help offset the tax burden) at about $7 billion.  Last year, it came in at $3.5 billion.
• US combine and tractor sales are 26% lower than 2013
• Although loan volumes are rising, delinquency rates are extremely low.  Over the last 15 years, they peaked in 2009-2010 at about 3.5% of total loans.  The current rate is now less than 1.5% and on operating loans, it is less than 1%.

Although trends in profitability are lower for crop farmers, livestock operators are still showing good profits.  The Ag Sector is still in much better shape than 30 years ago.

Paul Neiffer, CPA