Low crop prices and high production costs depressed profits for farmers in the closing months of 2014, “leading to a sharp rise in farm-sector borrowing and a slight decline in farmland values,” said the Agricultural Finance Databook produced by the Kansas City Federal Reserve Bank. The databook covers national trends in farm lending. “Should low crop prices and high input costs persist, crop sector profit margins may weaken further and strain loan repayment capacity in the coming year,” said the Databook.
“Agricultural lending escalated in the fourth quarter (of 2014) amid lower profits in the crop sector,” said the Databook, because growers needed financing to pay for the expenses of planting 2015 crops. While farmers took out short-term loans, they cut back on purchases of equipment. Profits were up in the livestock sector, thanks to lower-cost feed and high market prices for slaughter cattle and pigs. But feedlot operators needed to borrow additional money so they could buy feeder cattle.
In surveys by Federal Reserve Banks in Kansas City, Chicago, Saint Louis, Minneapolis and Dallas, agricultural banks reported a decline in repayment rates and more requests for renewal or extension of loans. Overall, banks slightly increased their requirements for collateral from farmers. “After narrowing in 2014, the direction of farm sector profit margins in 2015 will be a key factor in determining whether agricultural credit conditions improve or worsen in the coming year,” said the Databook.