The Federal Reserve Bank of Kansas City reports that strong farm income propelled farmland values to record highs and strengthened loan portfolios at agricultural banks at the end of 2011. Cropland values across the Corn Belt and northern Plains soared to all-time highs with many states posting annual value gains between 20 and 40 percent.
In addition, ranchland values rose sharply compared to last year as high feed costs boosted demand for prime pasture ground. Even drought-stricken areas of the southern Plains posted modest farmland value gains.
The Kansas City Bank also reports agricultural bank profits improved as borrowers repaid farm debts. In the third quarter, the return on assets at agricultural banks rose further and remained stronger than their banking peers. The share of delinquent farm real estate loans fell, and delinquent non-real estate loan volumes hit their lowest level since 2009. Bankers reported fewer loan renewals and extensions, so the downward trend in delinquency rates will likely continue.
Rising farm incomes boosted liquidity in the farm sector and slowed non-real estate lending in 2011. Agricultural bankers reported soft operating loan demand throughout the year. Meanwhile, commercial banks struggled to maintain market share. According to call report data, farm real estate loan volume at commercial banks for the third quarter was up just 0.6 percent compared to last year. In contrast, third quarter financial statements from the Farm Credit System reported 4.4 percent growth in farm mortgage loan volume year-to-date.