Source: Seventh Federal District AgLetter
Credit Conditions
Declining grain prices, which are down 15% for corn and 20% for soybeans from last year, has forced farm incomes to decline year-over-year for only the second time since 2009. The decline in farm income has slowed repayment rates for non-real-estate loans, sinking to their lowest level since the second quarter of 2010.
Non-real-estate loan demand continued to increase for the fourth consecutive quarter and are expected to increase to near record highs. Bankers across the district have also reported fewer funds available for loan, as well as tighter collateral requirements from a year ago.
Outlook
The majority of bankers feel that farmland values will decline in the fourth quarter for the first time since 1998. Respondents also feel that the demand from farmers and non-farm investors to acquire farmland this fall and winter will be lower than a year ago. The credit environment for farmers is tightening as bankers are expecting collateral requirements to increase through the next quarter as well as record setting loan demand.
If banks make it more difficult for farmers to borrow the money they need to run their operation in 2015, farmers will look for other opportunities to raise money. In the past when non-real-estate loans have been less attainable farmers sold portions of their owned acres to inject cash into their operation. An increase in the number of farms available for sale, coupled with the lower demand for farmland suggested in the report, may lead to the farmland market selling at a discount for the next three to six months.
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