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U.S. Farmer Loan Demand Falls to Seven-Year Low
USAgNet - 12/04/2020

Demand for loans in key U.S. agricultural districts has slumped to a seven-year low on a prolonged grain rally and mounting federal aid, but the unpredictability of Covid-19's impact on future conditions has restricted long-term optimism among farm bankers.

Surveys conducted by the Federal Reserve Banks of Minneapolis, Chicago and Kansas City showed farm demand for new non-real-estate loans contracted in the third quarter to the lowest level since 2013, as record government aid compounded with corn futures surging past $4/bushel and soybean values breaching $11/bushel.

Front-month corn and soybean futures have sustained a three-month rally on strengthening global demand, primarily concentrated in China, while livestock and dairy prices have incrementally recovered from the early-year doldrums spurred by the pandemic.

Strengthening agricultural markets have coupled with more than $35bn of federal aid to buoy farm earnings in 2020, increase cash flow and improve credit conditions, according to the US Department of Agriculture (USDA). Nevertheless, loan repayments were stable-to-lower from a year ago.

Dependence on ad-hoc federal aid in farm income -- which doubled over the last three years to 9pc of gross income in 2020, according to the USDA -- is cause for concern. With most aid exclusive to this season, uncertainty over future aid continues to cloud future lending conditions, according to the Kansas City Federal Reserve.

Fourth-quarter and 2021 outlooks remain muddied among districts because of uncertain government participation next year. The Chicago Federal Reserve bankers anticipate loan repayments to slip in the fall and winter, with asset liquidation to increase during the next 3-6 months. Meanwhile, only a fifth of bankers surveyed by the Kansas City Federal Reserve anticipate repayment rates to slip.

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