Operating loans lead to a decrease in lending to agriculture

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With federal aid in the fight against the pandemic in hand, farmers and ranchers in the early months of this year borrowed far less money from agricultural banks than usual to pay for equipment, livestock and operating expenses, according to a survey of commercial lenders by the Federal Reserve. “The volume of agricultural loans not related to real estate was about 10% less than a year ago, which continues the recent downward trend in demand for loans,” said Federal Reserve System of Kansas City data summary on Thursday.

“Lower demand for loans to finance operating expenses has led to an overall decline in lending to non-real estate farms. The amount of new operating debt fell to its lowest level in the first quarter since 2012, while the average maturity of these loans was the highest in any quarter on record. ”

Manufacturers held $ 79.6 billion in non-real estate loans, including $ 44 billion in operating loans, during the first quarter, which spans January, February and March. “With a decline of about 20% compared to last year, the volume of operating loans fell to the average value over the past 10 years on a rolling basis for four quarters,” – said the regional Fed.

“Factors specific to the 2020 pandemic likely contributed to the decline in lending activity during the year. Substantial government assistance through various programs in 2020 provided financial support that could mitigate the financial needs of some manufacturers by the end of the year, ”says the Kansas City Fed report by economists Nathan Kaufman and Ty Kreitman. “In addition, the Small Business Administration’s Payroll Protection Program accounted for a significant portion of the loans reported and likely replaced some of the typical financing needs of some borrowers.”

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