In the southern Plains, weaker farm income limited farmland value gains. Severe drought struck Oklahoma and areas of Kansas, Missouri and Colorado, stressing crops and drying out pastures. Reduced yields cut farm incomes and drove an increase in crop insurance claims.
But powered by the boom in ethanol -- which now consumes almost 40 percent of the U.S. corn crop -- farm incomes have soared and continue to improve balance sheets on grain farms. Bankers were also encouraged by gains in livestock demand.
``Livestock prices remained higher than last year, supported by strong demand. Cattle and hog exports climbed during the third quarter and domestic consumption remained strong throughout the grilling season,'' the Kansas City Fed said.
``Recent declines in crop prices reduced feeding costs and improved profit margins. Survey contacts reported that herd liquidations in drought areas provided a temporary boost to farm income, and tight supplies may support stronger livestock prices going forward,'' it added.
``Farm credit conditions generally held steady across all district states in the third quarter,'' the Kansas City Fed said. ``Bankers reported strong agricultural loan portfolios even with varied farm income levels. The loan repayment index was little changed from the second quarter and remained well above year-ago levels,'' it added.
The Chicago Fed also said that farm credit conditions continued to improve. Interest rates on farm loans fell below the prior quarter's record lows, its survey showed. (Reporting by Christine Stebbins; additional reporting by Ann Saphir; editing by Jim Marshall)