Due to the summer drought spurring much higher feed costs, farm lending activity at commercial banks recorded their fastest pace in five years. According to the Federal Reserve of Kansas City in their National Trends in Farm Lending October, 2012 report, demand for short-term operating loans increased as input costs soared and herd liquidation boosted loans for feeder cattle.
Bankers continue to report increases in land values, but the pace of gains has slowed from the previous quarter. Competition among agricultural lenders remained heated and banks have plenty of liquidity. Average return on assets for banks rose to a four year high.
The volume of short-term loans jumped 36% from this quarter compared to last year which is a new survey high. Due to high prices in the crop sector, loans for machinery remain above year-ago levels.
Feeder cattle loans exceeded 2011 levels by about 60 percent, more than offsetting a drop in other types of livestock loans.
Non-real estate loan volumes at small banks rose by about 10 percent while larger banks saw a 4% drop.
Ag banks saw a return on assets of about .6% which compares very favorably to the .4% for non-ag banks.
Farm land prices continue to increase as summarized in this chart.