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Falling crop prices mean ‘belt-tightening’ in rural communities

Some caution signs are evident in the latest survey of agricultural credit conditions in the Federal Reserve’s seven-state Tenth District—the Kansas City district.

Nathan Kauffman, the Fed’s Omaha branch executive, says the good news is that most ag bankers reported solid credit conditions in the second quarter.

corn field-emerson iowa 8-13“The important thing to note for now is that it looks like credit quality is still strong,” Kauffman says. “Repayment rates, though they’ve softened a little bit, are still relatively strong—although that does present some concerns going forward.”

The big concern is crop prices that have fallen below the cost of production. Kauffman says crop insurance payments will help support crop producers this year.  He’s more concerned about 2015.

“For 2014 the crop insurance price for corn, for example, was set at $4.62—which was quite a bit higher than where cash prices are right now,” he says. “Going into early next year, February will be another important month, just thinking about where the crop insurance might be set going into next year.”

AUDIO: Nathan Kauffman (5:10 MP3)

Banker Todd Adams, CEO of Ogallala, Nebraska-based Adams Bank & Trust, says farmers are starting to tighten their belts.

“We’re already seeing that they’re holding on to their billfolds a little tighter,” says Adams, “and I think some of the first places it will show up, with them upgrading their equipment over the last several years, is they’ll back off on their equipment purchases—maybe back off on some of their vehicle purchases—and tighten their belt a little bit on some of the other spending they do that’s discretionary.”

Unfortunately, Adams says, that’s also going to dampen Main Street business activity in rural communities.

AUDIO: Todd Adams (5:59 MP3)

The Fed’s Tenth District includes Nebraska, Kansas, Wyoming, Montana, Colorado, Oklahoma and western Missouri.

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