Nathan Kauffman, an executive with the Fed’s Omaha Branch, says lower farm incomes and weaker credit conditions continue in Iowa and neighboring states, but he says the second quarter was not quite as negative as it has been the past couple of years.
“We’ve seen commodity prices really be more or less stable the last couple of years, albeit at a lower level,” Kauffman says. “We’re just not seeing the same pace of decline that we would’ve seen a couple years ago as commodity prices had really fallen sharply.” Kauffman says many lenders were caught off guard a few years ago with the decline in commodity prices, but he says it seems like they have adjusted.
“A lot of lenders are still trying to work through some of those issues, communicate more effectively with their borrowers, maybe requiring a little bit more from their borrowers, recognizing that maybe not out of the woods even though things are not deteriorating as rapidly as they had been,” Kauffman says. During the second quarter, more bankers reported denying new farm loan requests compared to the previous two years. Kauffman says credit conditions are weaker compared to several years ago.
“There are a number of businesses that would be involved in providing service to agriculture,” Kauffman says. “So, when there are changes to the agricultural economy, that does have an impact across a larger spectrum of business interests.”
Producers are not being helped by the fact that interest rates on variable rate operating loans increased to nearly six-percent in the second quarter, the highest in five years. Kauffman says conditions are stabilizing, but commodity prices are still lower than five or six years ago.