Posted: Wednesday, March 06, 2013 9:52 AM
By MATEUSZ PERKOWSKI
Anxiety over potential tax hikes led farmers to borrow more money for land and inputs last year, sharply increasing the loan volume of ag lenders.
Loan volume rose nearly 10 percent, to $192 billion, among the Farm Credit System network of government-sponsored lenders in 2012.
Farm loans rose more than 9 percent, to $67 billion, last year among other banks tracked by the Federal Deposit Insurance Corp.
Borrowing for land transactions increased due to "uncertainty regarding tax law changes after year end," according to the Federal Farm Credit Banks Funding Corporation, which tracks the finances of system lenders.
Farmers had expected capital gains and estate taxes to surge in 2013, but those rates rose less than expected due to a deal struck by Congress early this year.
The FFCB also found that production and intermediate-term loans spiked late last year "as agricultural producers prepaid 2013 input costs as part of their tax planning strategies."
Commodity crop prices were also driven up due to the widespread Midwestern drought, prompting farm cooperatives to increase borrowing to cover the higher cost, according to FFCB.
The drought otherwise hasn't had a significant negative effect on the Farm Credit System yet, largely due to federal crop insurance payments, the corporation said.
Non-performing loans -- such as those that were past due, subject to bankruptcy or were not accruing -- dropped 13 percent among system lenders, to $2.3 billion.
The amount of bad debt charged off by system lenders fell more than 50 percent compared to the prior year, from $500 million to $236 million. The Farm Credit System's net income topped $4 billion, up 4.5 percent from 2011.
Agricultural banks outside the system also had a strong year in 2012, with two-thirds reporting earnings gains. Collectively, these banks earned $2.9 billion in net income, up from $2.3 billion the prior year.
Only 3 percent of non-system agricultural banks were unprofitable, compared to more than 10 percent for the overall lending industry, according to FDIC.
However, conditions have generally improved throughout the banking sector in the past year, with a 19 percent jump in overall net income, to $141 billion, the agency said.
The proportion of loans charged off as bad debt across the lending industry has fallen from the most recent peak of 2.55 percent in 2010 to 1.1 percent in 2012. The number of "problem institutions" fell from 884 to 651 in that time.