Nathan Kauffman Economist Federal Reserve Bank of Kansas City - - PowerPoint PPT Presentation

▶
nathan kauffman economist federal reserve bank of kansas
SMART_READER_LITE
LIVE PREVIEW

Nathan Kauffman Economist Federal Reserve Bank of Kansas City - - PowerPoint PPT Presentation

Jun 04, 2023 23 likes •146 views

Nathan Kauffman Economist Federal Reserve Bank of Kansas City Omaha Branch The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

slide-1
SLIDE 1

Nathan Kauffman Economist Federal Reserve Bank of Kansas City – Omaha Branch

The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

slide-2
SLIDE 2

Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division

www.kansascityfed.org/omaha

“Cost of capital items (land) preclude young farmers from borrowing unless they can get FSA low rate financing.” “With land prices this high young farmers can't buy any land without support of someone who has financial strength.” “Nearly impossible to compete with existing established farmers. Without family, equipment, land and backing it is very difficult to be a ‘young, beginning’ farmer.” “Unless a young or beginning farmer is part of a family operation or has a fairy godmother the barriers are almost insurmountable even in this low interest rate environment.”

slide-3
SLIDE 3

Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division

www.kansascityfed.org/omaha

Kansas City District Nebraska, Kansas, Oklahoma, Wyoming, Colorado, Missouri, New Mexico

  • Survey of ~250 Commercial

Bankers

  • Farmland values, cash rents,

farm incomes

  • Credit conditions: interest rates,

collateral requirements, loan demand, funds availability, etc.

slide-4
SLIDE 4

Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division

www.kansascityfed.org/omaha

40 60 80 100 120 140 160 40 60 80 100 120 140 160 Loan Repayment Rate Collateral Required Period 2 Period 3 Diffusion Index*

Source: Agricultural Finance Databook *Commercial bankers responded by indicating whether conditions during a given quarter were higher than, lower than, or the same as in the year-earlier period. The index numbers are computed by subtracting the percentage of bankers who responded “lower” from the percentage who responded “higher” and adding 100.

Period 1

slide-5
SLIDE 5

Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division

www.kansascityfed.org/omaha

  • 15
  • 10
  • 5

5 10 15 20 25 30 35

  • 15
  • 10
  • 5

5 10 15 20 25 30 35 Irrigated Cropland Nonirrigated Cropland Ranchland Percent change from the previous year

Source: Federal Reserve Bank of Kansas City, Survey of Agricultural Credit Conditions

Period 1 Period 2 Period 3

slide-6
SLIDE 6

Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division

www.kansascityfed.org/omaha

15000 30000 45000 60000 75000 90000 105000 120000 $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 Under 35 35 to 44 45 to 54 55 to 64 Over 64 Farm Equity (Left Scale) Real Estate Debt (Right Scale) Non-real Estate Debt (Right Scale) Dollars per farm

Source: USDA Agricultural Resource Management Survey, (2011 data)

slide-7
SLIDE 7

Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division

www.kansascityfed.org/omaha

20 40 60 80 100 120 140 $- $20 $40 $60 $80 $100 $120 $140 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 USDA FAPRI Projected Billion Dollars (Constant 2012 Dollars)

Source: USDA, FAPRI

slide-8
SLIDE 8

Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division

www.kansascityfed.org/omaha

Percent, Annualized*

* Calculated as 10-day historical volatility using standard deviation of daily corn prices, then annualized and expressed as a quarterly average.

5 10 15 20 25 30 35 5 10 15 20 25 30 35 1994 Q1 1996 Q1 1998 Q1 2000 Q1 2002 Q1 2004 Q1 2006 Q1 2008 Q1 2010 Q1 2012 Q1 Corn Price Volatility*

  • Avg. Corn Price Volatility (1994 - 2006)
  • Avg. Corn Price Volatility (2006 - 2012)
slide-9
SLIDE 9

Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division

www.kansascityfed.org/omaha

60 70 80 90 100 110 120 130 140 60 70 80 90 100 110 120 130 140 Debt-to-Equity Ratio Loans Made Collateral Required Loan Repayment Farmland Purchased

* Bankers responded by indicating whether conditions in the fourth quarter of 2012 are typically higher than, lower than,

  • r the same for young and beginning farmers relative to other farmers. The index numbers are computed by subtracting

the percentage of bankers who responded “lower” from the percentage who responded “higher” and adding 100.

Diffusion Index*

slide-10
SLIDE 10

Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division

www.kansascityfed.org/omaha

NY Fed Small Business Survey (Aug. 2012)

  • 37% of loans were denied
  • 13% approved for full amount
  • Larger, more experienced firms were more successful in obtaining credit.
  • Insufficient collateral the #2 reason for refusal (28%).

National Small Business Association Survey (NSBA 2012)

  • 25% denied based on collateral
  • 31% rely on lending from friends and family
slide-11
SLIDE 11

Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division

www.kansascityfed.org/omaha

Agriculture has high capital costs, constraining entry.

Higher collateral is a rational response to greater risk. Questions

Are risks being properly measured?

Is the land ownership model tenable?

What makes agriculture different?

slide-12
SLIDE 12

For More Information

  • n

The Midwestern Economy and Rural America www.kansascityfed.org/omaha