However, as working capital has declined due to high production costs and lower crop revenues, more producers have needed external financing to pay for operating expenses and capital purchases.
Loan demand was also supported by livestock loans on feeder cattle, which still command historically high prices.
In fact, demand for non-real estate farm loans increased across all District states in the first quarter and is expected to remain elevated over the next three months.
If expectations are met, the survey measure of loan demand would be the highest since the survey began in 1980.
And paying back loans is slumping.
Alongside reduced farm income and higher loan demand, loan repayment rates have declined significantly.
Bankers also expressed concerns over increased debt-to-asset ratios, especially for younger farmers with high borrowing needs.
Low crop prices placed added stress on net farm incomes and contributed to weaker credit conditions in the first quarter. As farm incomes fell, cropland values moderated and more producers depended on financing to cover operating expenses.
Sufficient funds were available to meet increases in loan demand, but declines in repayment rates as well as slight increases in carry-over debt, collateral requirements and loan renewals and extensions suggest that credit quality may become more of a concern moving forward.
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All of which is summed up ominously by JPMorgan, writing in a downgrade not for Deere, that.
We recently spent some time in the Midwest meeting various agriculture industry participants including dealers, farmers and industry experts. We believe it was clear from what we heard that the industry is currently in dire straits with the potential for a liquidity crunch for farmers into 2016.
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Source: JPMorgan, Kansas City Fed, Bloomberg
This article is brought to you courtesy of Tyler Durden From Zero Hedge.