publication archive: Paul Ellinger
May 25, 2012
Bank Branch Expansion in Rural Areas
The commercial banking industry has been changing rapidly over the past three decades. Changes have occurred in the structure of the industry as well as innovations in the delivery of financial services to individuals and firms. There are continued concerns that the changing landscape and the newer regulatory environment could impact niche banks and banks operating in rural areas.Posted by Paul Ellinger Permalink Tweet
April 27, 2012
Challenges Facing Small Banks Lending to Agriculture
Despite continued bank consolidation, small banks remain important lenders to agriculture. Approximately, 35% of the 5,566 commercial banks with farm production or loans secured by farm real estate have assets less than $100 million at year end 2011. These banks held 12% of all agricultural loans at commercial banks. In 2001, banks with assets less than $100 million held 29% of agricultural loans.Posted by Paul Ellinger Permalink Tweet
March 29, 2012
Cash Holdings Continue to Rise
According to a recent Moody's Investors Services report, U.S. corporate companies are sitting on a record high $1.24 trillion of cash. The Wall Street Journal reports cash and near cash holdings by U.S. nonfinancial firms increased from 9% of GDP in 2003 to 13.9% in 2011. Analysts suggest these increased holdings are partially a reaction to the financial crisis. Some companies are repairing their balance sheets. Although capital investments by corporations are increasing moderately, many companies have been cautious due to the economic outlook and regulatory uncertainty. Due to limited investment opportunities, many companies are simply increasing stock buybacks and dividends to enhance shareholder returns. For example, Apple announced in March they will start paying dividends for the first time since 1995 and also initiate a $10 billion stock buyback next year. The lack of capital investment of this cash does push against stronger economic activity and growth.Posted by Paul Ellinger Permalink Tweet
December 2, 2011
More Iron on the Farm: Machinery Investment Increasing
Farming has always been a very capital intensive business. Substantial investments in land, buildings and machinery are needed to remain viable. Recent farmland price increases are well documented. The Chicago Federal Reserve Bank reported the highest year-over-year increase in farmland values since the 1970s at 25 percent.Posted by Paul Ellinger Permalink Tweet
October 28, 2011
Agricultural Banks Improve Profitability
The health of many commercial banks in the U.S. has improved in 2011. However, many of the large U.S. banks continue to face significant challenges, especially in their residential and commercial mortgage portfolios. Additional regulatory costs including the Dodd-Frank Wall Street Reform and Consumer Protection Act present challenges for small and large banks. As a share of total operating costs, these regulatory costs are greater for smaller banks. Regulators are also placing higher regulatory emphasis on banks with significant concentrations in industry sectors such as agriculture.Posted by Paul Ellinger Permalink Tweet
August 26, 2011
Sensitivity of Farm Balance Sheets to Changes in Farm Real Estate
A commonly cited financial health measure for U.S. households is the percent of housing equity to total household wealth. Household equity as a percentage of household net worth has declined to about 11% from 23% during the peak. A June 2011 report from CoreLogic estimates that Nevada has the highest negative equity percentage with 63% of all home mortgaged properties underwater, followed by Arizona (50%), Florida (46%), Michigan (36%) and California (31%). They estimate that approximately 22% of mortgages in Illinois have debt values exceeding property values.Posted by Paul Ellinger Permalink Tweet
July 22, 2011
Farm Liquidity - A Buffer for Volatile Revenue and Costs
Commodity price volatility and yield uncertainties combined with large swings in input costs have resulted in high but volatile farm earnings. In general, the profitability of farms in the U.S. and Cornbelt has been strong the past decade. The top five years in U.S. farm earnings for the past 30 years have occurred since 2004 (Figure 1). USDA forecasts farm earnings to be $94.7 billion in 2011, up almost 20% from the 2010 forecast and the second-highest inflation adjusted level in the past 35 years.Posted by Paul Ellinger Permalink Tweet
June 24, 2011
FOMC Policy: Potential Linkages to Farm Interest Rates
The Federal Open Market Committee (FOMC) met this past Tuesday and Wednesday. The statutory dual mandate of the Committee is to foster maximum employment and price stability. From the FOMC statement: "The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan." The Committee decided to keep the target range for the federal funds rate at 0 to ΒΌ percent and conditions likely warrant low levels for the federal funds rate for an extended period.Posted by Paul Ellinger Permalink Tweet
June 13, 2011
Interest Rate Risk - Know Your Exposure
Easing U.S. monetary policy has resulted in low interest rates for borrowers and savers. The Federal Reserve has kept interest rates near zero for two and a half years and purchased more than $2 trillion in long-term securities. The Federal Reserve's second round of easing, commonly referred to as QE2, is scheduled to end in June 2011. Federal Reserve chairman Ben Bernanke has indicated the Federal Reserve is in no hurry to increase interest rates after the most recent central bank policy meeting. Most market investors assume the Federal Reserve will maintain the low federal fund rate policy to the end of 2011 with potential interest rate increases in 2012. The timing and magnitude of increases will depend on improvements in domestic and international economic growth as well as inflationary expectations.Posted by Paul Ellinger Permalink Tweet
May 27, 2011
The Financial Health of the Farm Credit System
In my last farmdoc daily blog, I summarized the financial health of commercial banks lending to agriculture. Similar to commercial banks, Farm Credit System (FCS) institutions navigated the financial crisis and remain strong and profitable. The Farm Credit System of institutions, established in 1916, provide approximately $160 billion in loans and related services to farmers, ranchers, rural homeowners and other agricultural related businesses.Posted by Paul Ellinger Permalink Tweet
April 22, 2011
The Financial Health of Banks Lending to Agriculture
Most commercial banks lending to agriculture have weathered the financial tsunami of the past 36 months. Many of the agricultural-related banks did not participate aggressively in the high-risk housing or commercial real estate markets. As a result, agricultural banks did not sustain the substantial liquidity and capital problems faced by many global financial institutions. In general, credit remained available for farmers and ranchers throughout the financial crisis. The profitability of production agriculture through the crisis certainly played a critical role in credit quality and quantity at agricultural banks.Posted by Paul Ellinger Permalink Tweet
