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Many ag loans saw interest rate declines ahead of Federal Reserve cut

Progressive Dairy Editor Dave Natzke Published on 19 August 2019

Interest rates on many types of agricultural loans in the nation’s midsection were already headed lower before the Federal Reserve’s Open Market Committee (FMOC) adjusted its benchmark lending rate lower in late July. In the first reduction since 2008, the FMOC dropped the rate to 2% from 2.25%, or 25 basis points from the previous level, and also left the door open to future cuts in 2019.

Based on quarterly lender surveys from Chicago, Dallas, Kansas City, Minneapolis and St. Louis Federal Reserve districts, interest rates on many agricultural loans as of July 1 were already headed lower, in many cases coming off decade-high levels. By district (Table 1):

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081519 natzke tbl1

  • Dallas: It was a mixed bag, with interest rates moving slightly higher on variable-rate operating and intermediate loans. Fixed-rate operating loan interest rates were unchanged, but interest rates on fixed-rate intermediate loans were lower. Both fixed-rate and variable-rate long-term real estate loans saw declines in interest rates. Finally, second-quarter 2019 interest rates on feeder cattle loans (both variable-rate and fixed-rate loans) were higher than the previous quarter.

  • Kansas City: Interest rates of variable-rate intermediate loans were up from the previous quarter, but operating and farm real estate loans were down. Interest rates for all categories of fixed-rate loans were lower than the previous quarter. Within the region, rates were generally highest in Oklahoma and Mountain States regardless of loan type. Nearly 18% of lenders responding to the quarterly survey reported denying more than a tenth of operating loan requests.

  • St. Louis: Interest rates on all six of the fixed- and variable-rate loan categories declined. Fixed-rate real estate loans were the most stable, declining 4 basis points, while all other categories declined between 10 and 12 basis points.

  • Chicago: Interest rates of variable-rate operating and farm real estate loans were down from the previous quarter; interest on feeder cattle loans rose. Credit tightening continued unabated in the second quarter of 2019, as 25% of ag lender survey respondents reported that their banks required larger amounts of collateral than a year ago, and none reported requiring smaller amounts. The portion of the district’s agricultural loan portfolio reported as having "major" or "severe" repayment problems (6.2%) had not been higher in the second quarter of a year since 1999.

  • Minneapolis: Interest rates for all categories of variable-rate and fixed-rate loans decreased modestly from the previous quarter.  end mark
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