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Agricultural Credit Market Update

Learn about the current state of the agricultural credit market, including tight margins, exhausted working capital reserves, and the need for short-term liquidity. Discover the increasing risk in farm debt and the potential impact on farmers. Stay informed on interest rates and credit market conditions to make informed decisions.

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Agricultural Credit Market Update

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  1. Agricultural Credit Market Update Todd H. Kuethe

  2. Agricultural Credit Market Update • Tight margins and exhausted working capital reserves • Farms may wish to use debt capital to meet short-term liquidity needs • Farmers likely to face increased scrutiny

  3. Total farm debt has been increasing, slowly Source: USDA-ERS

  4. Debt relative to income has been increasing, quickly (liquidity risk) Source: USDA-ERS

  5. Solvency position still strong, but signs of increasing risk Source: USDA-ERS

  6. After long period of decline,delinquencies are rising (slightly) Non-Real Estate Real Estate Source: Ag Finance Databook

  7. Farm loan risk ratings areincreasing (slightly) Source: Ag Finance Databook

  8. Credit risk migration for Illinois grain farms Source: FBFM

  9. Credit risk migration for Illinois grain farms

  10. Federal Reserve Districts • Quarterly surveys of agricultural bankers • Interest rates • Credit market conditions (subjective)

  11. Quarter 3 Interest Rates Chicago St. Louis Source: Chicago Fed, St. Louis Fed

  12. Credit conditions deteriorating Source: Chicago Fed

  13. Credit conditions deteriorating Source: Chicago Fed

  14. Credit conditions deteriorating Source: Chicago Fed

  15. Credit conditions deteriorating Source: St. Louis Fed, Ag Finance Databook

  16. FOMC’s Target Rate Source: FOMC

  17. The Fed’s Dual Mandate • "The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.“ – Federal Reserve Act, 1977 • In English: • Keep inflation low (about 2%) • Keep employment near full potential (unemployment 4.5 – 5%).

  18. The Fed’s Dual Mandate Source: FRED

  19. The Fed’s Dual Mandate Source: FRED

  20. The Fed’s Dual Mandate Source: FRED

  21. Why many are arguing for an immediate rate increase Source: FRED, NBER

  22. Federal Funds Rate and the Cost of Agricultural Borrowing Operating Loans Farm Real Estate Source: FRED, Chicago Fed

  23. Summary • Farmers should practice caution in acquiring new lines of credit • Borrowers likely to face increase scrutiny • Interest rate increases are likely

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