USDA has issued its annual "Ag Income & Finance Outlook" report. A summary of the report is available online at: www.ers.usda.gov/publications/so/view.asp?f=economics/ais-bb/. USDA reports that total farm business debt at year-end 2002 is estimated to be $202 billion, up 5 percent from a year ago, and exceeds the previous 1984 nominal peak by 4.2 percent. Farm loan volume held by commercial banks grew 2.3 percent while the Farm Credit System (FCS) portfolio expanded 12.5 percent. Commercial banks and the FCS accounted for 69 and 26 percent, respectively, of the estimated $9.9-billion increase in farm lending in 2002. Commercial banks now hold 39.4 percent of the market. FCS market share grew in 7 of the last 8 years to 30.3 percent at yearend 2002.
Interest rates on new farm loans made in 2002 were at their lowest levels in decades. The largest declines took place in the shorter-term loans. Interest rates on non real estate loans declined 100-200 basis points from 2001 to 2002. Interest rates on real estate loans declined 50-100 basis points. Interest rates are expected to rise somewhat during 2003. Non-real estate rates are expected to increase 10-20 basis points above their fourth-quarter averages. Rates on real estate loans are expected to rise 25-50 basis points over the same period.
Agricultural banks had a solid year in 2002. An annualized mid-2002 rate of return on assets (ROA) of 1.3 percent is a bit higher than it has typically been since 1992. At 12 percent, return on equity (ROE) was back up from 11.3 percent the prior June to the range prevailing over the last decade. Loans in non-performing status at midyear were 1.2 percent of total loans, modestly higher than agricultural bank values in recent years. Only two of the over 2,600 agricultural banks failed in 2002 and only five failed in the prior 8 years. While farm loans outstanding at nonagricultural banks had been increasing fairly steadily through the 1990s, a $0.9-billion decline in farm loans for nonagricultural banks left them with 47.6 percent of commercial bank farm loans, down from 49 percent the previous year. Further, the drop in outstanding farm loans was even higher ($1.4 billion) at nonagricultural banks with assets exceeding $500 million. It could be that some large banks are consciously reducing their exposure to the farm sector or losing business to the FCS or smaller banks.
FCS loan volume grew at a fast pace again in 2002, with long term real estate volume up 13 percent and short- and intermediate-term loan volume up 9 percent from September 30, 2001, to September 30, 2002. Net interest spreads increased relative to the previous year as yields on funds used to finance FCS lending fell faster than rates charged on loans.
Demand for Farm Service Agency (FSA) farm ownership loan guarantees rose 29 percent and farm operating loan guarantees 6 percent in fiscal 2002. Despite widespread weather-related disasters, demand for emergency loans dropped near 30-year lows.