Agricultural Outlook Forum Presented: February 18 19, 2010 U.S. Department of Agriculture

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1 Agricultural Outlook Forum Presented: February 18 19, 2010 U.S. Department of Agriculture Credit Conditions for Rural Businesses and Farm Households Brian C. Briggeman

2 Brian C. Briggeman Economist February 18, 2010 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.

3 Comparing rural businesses and farm households before the Great Recession Lending to businesses during the recession Monitoring credit conditions

4 Average Income Average Assets ($1,000) ($1,000) $200 $1,200 $150 $900 $100 $600 $50 $300 $0 Farms (2005 ARMS) Rural Small Businesses Urban Small (2003 SSBF) Businesses (2003 SSBF) $0 Total Household Income (Left Axis) Source: 2005 Agricultural Resource Management Survey (USDA) and 2003 Survey of Small Business Finances (Federal Reserve Board of Governors). Calculations by author. Total Household Assets (Right Axis)

5 Probability of Being Approved for Credit* Farms (2005 ARMS) Rural Small Businesses Urban Small Businesses (2003 SSBF) (2003 SSBF) 0.10 Source: 2005 ARMS (USDA) and 2003 SSBF (Federal Reserve Board of Governors). Calculations by author. *Marginal effect of being approved for credit: RHS = income, assets, debt to asset ratio, age, work tenure, college degree.

6 Return on Assets Tier 1 Capital Ratio 1.2% 1.2% 12.0% 12.0% 0.9% 0.9% 10.0% 10.0% 0.6% 0.6% 8.0% 8.0% 0.3% 0.3% 6.0% 6.0% 0.0% 0.0% All Commercial Banks Commercial Bank < $1B Assets Agricultural Banks Source: FDIC and Agricultural Finance Databook 4.0% All Commercial Banks 4.0% Commercial Bank < $1B Assets Agricultural Banks Source: FDIC and Agricultural Finance Databook

7 Percent change from year ago Domestic Bank Deposits (Second Quarter) All Commercial Banks Commercial Banks <$1B Assets Agricultural Banks Source: FDIC

8 Billion Dollars 1,200 Excess Reserves of Depository Institutions 1, Source: Federal Reserve Board of Governors

9 Diffusion Index 200 Loan Standards Diffusion Index 200 Credit Standards for 175 US U.S. Commercial Real Estate Loans Collateral Requirements for Tenth District Agricultural Loans Source: Federal Reserve Board of Governors and Federal Reserve Bank of Kansas City

10 160 Tenth District Farm Loan Demand and Funds Availability Funds Availability 140 Index Periods when the targeted Fed Funds rate rose. Farm Loan Demand Index Source: Federal Reserve Board of Governors and Federal Reserve Bank of Kansas City

11 In general, rural business and farm household credit conditions have fared better than urban counterparts But challenges to credit conditions exist (e.g., commercial real estate debt and the U.S. economy deleveraging) g) How will exiting the accommodative monetary policy (U.S. and abroad) impact rural credit conditions?

12 For More Information Federal Reserve Bank of Kansas City Omaha Branch