Farm lenders in the Midwest are sensing a slight improvement in the ability of their customers to repay loans, according to a report from the Kansas City Federal Reserve Bank.
Each quarter, the reserve bank builds an index based on whether lenders in its district say loan repayment has been getting better than in the year-earlier period or worse.
That index rose from this year's first to second quarter, indicating that more bankers in June believed conditions had improved from a year earlier than thought that way in March.
Even so, the overall percentage of bankers who still assessed the repayment situation as weaker than last year remained higher than the percentage who saw improvement.
"Losses continued for district feed lots and ranches, and many winter wheat producers harvested a disappointing crop," the article said. "Repayment rates on farm loans remained weak."
Moreover, most banks still reported problems with borrowers ranging from outright delinquencies to debtors needing a phone call before they would pony up, said Scott Ryckman, a research associate at the reserve bank. The index and findings by Mr. Ryckman and assistant vice president Alan Barkema were published this month in the Kansas City Fed's Regional Economic Digest.
The economists polled 352 banks in the 10th Federal Reserve District, which includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and parts of New Mexico and Missouri.
Dragging down the region is Oklahoma, where farmers have been hammered by drought, a poor wheat crop, and low cattle prices.
During the second quarter, Oklahoma bankers reported serious repayment problems on 14% of their farm loans, the article said. Districtwide, by contrast, only 9% of farm loans had serious payment problems.
"We've got some farm problems, sure have," said Dean Ranson, chief executive of Fairview (Okla.) Bancshares. The $46 million-asset bank, located about 75 miles northwest of Oklahoma City, has a customer base that includes a good number of wheat farmers.
Nonaccruing farm loans at Fairview hit $158,314 in the second quarter, up 111% from the year-earlier level.
John V. Anderson, chief executive of Farmers and Merchants Bancshares, Crescent, Okla., also said the collecting has gotten tougher.
"There's some suffering going on out there, and we can see it in our loans," Mr. Anderson said. "We haven't noticed an increase in delinquency, but that doesn't mean we haven't had to jump on some people."
By contrast, the best-performing state in the region was Missouri, where banks reported repayment problems on only 5% of their farm loans.
Some other news from another Kansas City Fed studies was clearly upbeat. For example, an index that measures improvement in loan demand also rose in the second quarter, after taking a drop in the year-earlier period, the article said.
And the average ratio of loans to deposits at district banks increased slightly to, 62.4% from 62.1%, the article said.
