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(1)Federal Reserve Bulletin: February 1957. Farm Loans for Current Expenses FARM LOANS for the purpose of financing current expenses made up nearly twofifths of the dollar volume and one-half the number of all farm loans outstanding at insured commercial banks in mid-1956. Current-expense loans as used here are loans to finance the recurring seasonal expenses of crop and livestock production, such as feed, seed, fertilizer, labor and fuel, and family living outlays, or to purchase feeder livestock. These are types of loans that are ordinarily paid off at the end of each crop season or at the time of marketing.. About one-half of all farm borrowers at banks and close to one-fourth of all farmers in the United States had one or more current-expense loans outstanding at midyear. Loans for current operating purposes (including family expenses) made up threefourths of the dollar total of loans in this category, and feeder livestock loans onefourth. The relatively large volume of currentexpense loans in relation to other types of farm loans held by banks, as well as their widespread distribution, reflects the large NOTE.—This is the third of a series of articles reporting the findings of the Agricultural Loan Survey made in 1956 by the Federal Reserve System. The first article was published in the Federal Reserve BULLETIN for November 1956, and the second in the BULLETIN for January 1957. The fourth article appears on p. 133 of this issue. The present article was written by Philip T. Allen of the Board's Division of Research and Statistics. Data for the Survey are from a sample of about 1,600 insured commercial banks in all major areas of the United States. Nonmember banks as well as member banks of the Federal Reserve System reported in the Survey.. volume of short-term cash outlays required by present-day agriculture in this country. In addition, it reflects the predominant role of commercial banks as suppliers of shortterm credit to farmers. The growth in this type of credit to something more than double the estimated volume in 1947, the date of the previous Survey of this type, appears to have about paralleled growth in farm loans to finance machinery and equipment and other intermediate-term investments. As with bank farm loans generally, a much larger proportion of farmers were using bank credit to finance current expenses in 1956 than in 1947, when farm incomes were much higher in relation to costs. The current-expense loans of many farmers were small. The outstanding current expense debts of nearly one-half of the borrowers with such loans totaled less than $500. These constituted only about 6 per cent of the total debts in this category. Indebtedness for feeder livestock purchase averaged much larger than that for current operations. Four-fifths of the borrowers with currentexpense loans outstanding at midyear had no bank loans to finance intermediate-term investments or to buy farm real estate. Current-expense borrowers with smaller net worths tended to have no other major type of loan at the bank more frequently than did borrowers of larger net worths. It should be noted, however, that banks may cover different purposes with one note, in which case the whole loan was classified 125.

(2) Federal Reserve Bulletin: February 1957. 126. FEDERAL RESERVE BULLETIN • FEBRUARY 1957. characteristics of farming, and to the tenure and net worth of the borrower.. under its principal purpose for this Survey. Operators of both meat-animal farms and cotton farms used current-expense credit frequently, but usually for different purposes. Over one-half of these loans to meat-animal producers were to purchase feeder livestock, while almost all of those to cotton farmers were for current operations. Reflecting the lag between farm expenditures and receipts, current-expense loans were generally of short original maturities. Consequently, the outstanding loans had been made, or last renewed, very recently —all but 3 per cent of the dollar volume within the 12-month period immediately preceding the Survey. About one-third of the outstanding dollar volume, however, had been renewed one or more times. Few of the loans were repayable in instalments. Security for current-expense loans was most frequently a chattel mortgage, although the use of unsecured loans was fairly common among borrowers of substantial net worth. Security requirements appeared to be closely related to regional practices and. RELATIVE IMPORTANCE. The proportion of farm borrowers at banks who had loans for current expenses varied greatly for borrowers operating different types of farms: it was three-fourths for cotton farmers, two-thirds for meat-animal farmers, but only about one-third for dairy or poultry farmers (Table 1). Around onehalf of the borrowers operating other types of farms had current-expense bank loans outstanding at midyear.1 The less frequent use of current-expense loans on dairy and poultry farms and on general farms probably reflects a rather 1 In the middle of the year current operating loans are probably at or near their seasonal peak, while feeder livestock loans are in perhaps two-thirds the volume reached in the fall and winter. Considering both types of loans together, the midyear date probably tends to maximize their importance in relation to credit ordinarily extended for longer periods, such as loans to buy real estate or loans to finance intermediate-term investments.. TABLE 1 CURRENT-EXPENSE FARM LOANS COMPARED WITH ALL FARM LOANS, JUNE 30,. 1956. BY TYPE OF FARM [Loans outstanding at insured commercial banks]. Type of farm. All types Meat-animal Dairy Poultry Cash grain Cotton Other major product General Unclassified i. CurrentAll expense loans (In thou- (Inloans thousands) sands). Average debt per borrower. Amount of loans outstanding (In millions of dollars). Number of borrowers Percentage having currentexpense loans. Current-expense loans All loans. Total. Current operating. Feeder livestock. All purposes. Current expenses. 2,268. 1,105. 49. 5,050. 1,903. 1,406. 497. $2,227. $1,721. 212 331 34 245 184 176 985 99. 136 105 11 128 136 105 474 12. 64 32 32 52 74 60 48 12. 976 740 94 578 346 428 1,792 97. 576 92 20 222 216 174 596 7. 249 82 12 199 215 170 473 6. 327 9 8 23 1 4 124 2. 4,599 2,233 2,769 2,354 1,879 2,426 1,818 978. 4,249 874 1,762 1,738 1,584 1,660 1,260 622. 1 For purchased notes where the bank did not know the characteristics of the borrower, data on net worth, age of borrower, and type of farm were not required.. NOTE.—Details may not add to totals because of rounding..

(3) Federal Reserve Bulletin: February 1957. 127. FARM LOANS FOR CURRENT EXPENSES. uniform flow of income over the year, as compared with cotton, meat-animal, and some other kinds of farms from which income typically comes in rather large amounts a few times each year. In addition, particularly on poultry farms, shortterm credit from sources other than banks, such as feed dealers, may be important. Tenant borrowers used current-expense bank credit with somewhat greater relative frequency than owners. Of the total borrowers with bank loans for current expenses, 29 per cent were tenants. Tenants make up 24 per cent of the number of all farmers, according to the Census. Average size of outstanding current-expense debt was about $1,950 for owners compared with $1,100 for tenants; within most net worth groups, however, tenants' debts averaged one-half or more larger than owners' debts. Feeder livestock loans. About two-thirds of the feeder livestock loans were to operators of meat-animal farms (Table 1). Operators of general farms—where more income arose from other enterprises in the aggregate than from livestock feeding—had the bulk of the remaining one-third of this type of loan. One major difference between feeder livestock loans and current operating loans is in geographic concentration. The Midwestern Federal Reserve Districts of Chicago and Kansas City, which accounted for 37 per cent of the dollar volume of all currentexpense bank loans outstanding to farmers at mid-1956, had some 60 per cent of all feeder livestock loans. The San Francisco District, where feeder cattle operations have teen expanding in recent years, accounted for 15 per cent. While an estimate of the value of livestock on feed at midyear is not available, it is probable that this value is not greatly. in excess of the $497 million reported as feeder livestock loans in the Survey. There is no doubt that bank credit is of great importance in fattening livestock for market. SIZE OF BORROWINGS. The majority of farm borrowers at commercial banks at mid-1956 had only small debts outstanding for current expenses—47 per cent had less than $500 and 66 per cent had less than $1,000 (Table 2). Only 7 per cent had current-expense debts of $5,000 or more, although these borrowers had 53 per cent of the dollar amount of such credits outstanding. The typical size of individual current-expense notes was similarly small. Because current-expense loans are usually short term and not repaid in instalments, there was little difference in the size distribution of loans whether based on the original size (or size at last renewal) or on outstanding size. For example, 52 per cent of the number of loans to pay current expenses were for less than $500 when made or last TABLE 2 SIZE OF CURRENT-EXPENSE FARM BORROWINGS JUNE 30, 1956 [Loans outstanding at insured commercial banks]. Size of debt or note. All sizes Under $250 $250-$499 $500-5999 $1,000-$ 1,999.... $2,000-54,999.... $5,000-$9,999.. . . $10,000-524,999.. $25,000 and over.. Purpose (Thousands of notes). Number of borrowers. Number of notes. PerIn thou- centage distrisands bution. PerIn thou- centage distrisands bution. Current operating. Feeder livestock. 1,105. 100. 1,697. 100. 1,564. 134. 293 218 214 165 139 48 23 6. 27 20 19 15 13 4 2 1. 570 344 332 231 155 42 18 5. 34 20 20 14 9 3 1. 560 332 312 200 120 28 10 2. 10 12 20 31 36 14 8 2. 0). 1 Less than 0.5 per cent. NOTE.—Details may not add to totals because of rounding. "Size of debt" differs from "size of note" in that, for example, a borrower with a debt of $10,000 may have two notes of $5,000 each..

(4) Federal Reserve Bulletin: February 1957. 128. FEDERAL RESERVE BULLETIN • FEBRUARY 1957. renewed, while 54 per cent had outstanding balances less than $500 on June 30. Loans for feeder livestock operations were ordinarily of much larger size than loans to pay current operating expenses. Only 17 per cent of the number of feeder livestock loans were under $500 in outstanding size compared with 57 per cent of the loans for current operations, and 45 per cent were above $2,000 in contrast with 10 per cent of the current operating loans. To some extent this reflected differences in the net worth of borrowers obtaining the two types of loans—borrowers with net worths of $25,000 or more had about threefourths of the dollar volume of feeder livestock loans compared with one-half of the loans for current operating purposes. Since 1947 there has been sharp expansion in the size of loans for current operations, along with a considerable increase in the number of loans and of borrowers who. have such loans. The average size of these loans has nearly doubled since mid-1947 and their number has grown by more than one-third. Thus, the dollar volume is about two and one-half times the 1947 amount. SECURITY. Chattel mortgages were the most common security for current-expense loans, having been used for about one-half the dollar volume of loans outstanding at mid-1956. Unsecured loans constituted 37 per cent of the total. Endorsed loans were 6 per cent of the dollar loan volume, as were loans secured by farm real estate. Feeder livestock loans were more commonly secured by a chattel mortgage than were current operating loans, reflecting the fact that the livestock purchased could readily provide security for the mortgage. The use of livestock as security was only slightly less common among the higher than. TABLE 3 SECURITY FOR FARM LOANS FOR CURRENT OPERATIONS RELATED TO TENURE AND N E T WORTH OF BORROWER JUNE 30, 1956 [Loans outstanding at insured commercial banks]. Tenure and net worth of borrower. All current operating loans (In millions of dollars). Percentage distribution within groups Secured by: All loans. Unsecured. Endorsed. Chattel mortgage. Farm real estate1. Other. Owner-operator: All net worth groups. Under $3,000 $3,000-$9,999 $10,000-$24,999... $25,000-$99,999. .. $100,000 and over.. 1,010. 100. 40. 45. 17 116 243 385 244. 100 100 100 100 100. 12 22 36 48 42. 57 53 48 41 45. 283. 100. 26. 10. 62. 52 114 78 39. 100 100 100 100. 13 24 34 37. 24 10. 63 65 61 53. 21 15. Tenant: All net worth groups. Under $3,000 $3,000-$9,999.... $10,000-$24,999. . $25,000 and over.. 1 Includes loans insured or guaranteed by U. S. Government. NOTE.—Details may not add to totals because of rounding, and because borrowers whose net worth was not reported are included in. 5 4. totals. Loans to landlords (as distinguished from owner-operators) are omitted from this table..

(5) Federal Reserve Bulletin: February 1957. 129. FARM LOANS FOR CURRENT EXPENSES. the lower net worth borrowers. Chattel mortgages secured 61 per cent of the dollar volume of feeder livestock loans to borrowers with net worths of $25,000 or more, compared with 71 per cent of such loans to borrowers with net worths under $25,000. The net worth and also the tenure of the farm borrower had a substantial influence on the type of security used for current operating loans (Table 3). Loans to owners in the smaller net worth groups were secured by farm real estate to a considerable extent. Tenants in these net worth groups —who did not have real estate to pledge as security—utilized endorsements to a much greater than average extent. Owners and tenants in comparable net worth groups obtained similar proportions of loans on an unsecured basis. Nationally, and in most of the individual Federal Reserve districts, the proportion of loans to farm owners secured by farm real estate—and the proportion of loans to tenants that were endorsed—declined as the net worth of the borrower increased.. Strong regional patterns in security use that apparently were not related to regional differences in tenure or in net worth were evident (Table 4 ) . The use of endorsed notes in the Philadelphia and Richmond Districts was several times higher than the national average for each net worth class. For example, in these districts about twothirds of all loans to tenants having a net worth of less than $3,000 were endorsed, compared with the national average of onefourth. Similarly, the use of real estate security varied by regions. Owner-borrowers in the Atlanta and Richmond Districts pledged farm real estate as security with much greater than average frequency for the entire range of net worths. Unsecured loans were most common in the Cleveland and Chicago Reserve Districts, where about 70 per cent of the loan volume was not secured. This was twice the national average and reflected above average proportions of unsecured loans in each net worth and tenure group. Un-. TABLE 4 SECURITY FOR FARM LOANS FOR CURRENT OPERATIONS, JUNE 30, BY FEDERAL RESERVE DISTRICT. 1956. [Loans outstanding at insured commercial banks]. Federal Reserve district. Amount of loans (In millions of dollars). All districts New York Philadelphia Cleveland Richmond Atlanta Chicago St Louis. .... ... .. Kansas Citv Dallas San Francisco 1. Includes loans insured or guaranteed by U. S. Government.. Percentage distribution within district Secured by: All loans. Unsecured. Endorsed. Chattel mortgage. Farm real estate 1. Other. 1,406. 100. 37. 6. 48. 6. 3. 11 22 10 29 82 128 190 165 109 215 198 246. 100 100 100 100 100 100 100 100 100 100 100 100. 46 49 55 73 32 11 68 31 42 34 19 42. 8 11 36 15 26 5 6 6 4 2 3 4. 13 25 3 7 27 53 23 54 52 60 71 46. 7 4 5 4 10 29 6 2 2 3 4. 27 11 2 2 5 3 2 2 1 3 4 5. NOTE.—Details may not add to totals because of rounding..

(6) Federal Reserve Bulletin: February 1957. 130. FEDERAL RESERVE BULLETIN • FEBRUARY 1957. secured loans were also more frequent in the Northeast. MATURITIES AND INSTALMENTS. The typically short maturities of currentexpense loans reflected the needs of borrowers for funds during the period when crops and livestock were being prepared for market. Few of the loans were written with original maturities beyond one year, and in these cases the loans were much above average size. A considerable proportion of the current-expense loans had been renewed one or more times; such loans also were above average size. While this broad pattern of maturities. was apparent generally, there were some cases of fairly marked differences by regions and by types of farms. Demand loans and loans of very short maturities were more frequent in the three Northeastern Federal Reserve districts (Table 5 ) . Short maturities in this area have also been noted for farm loans for other purposes. Maturities of nine months and one year were more common in most of the Southern districts and in the San Francisco District. While security requirements tended to be more exacting in the South and less so in the Northeast, about the reverse situation was true of maturities. About one-fourth of the dollar volume. TABLE 5 MATURITY OF CURRENT-EXPENSE FARM LOANS, JUNE 30,. 1956. BY FEDERAL RESERVE DISTRICT [Loans outstanding at insured commercial banks] Original maturity! Federal Reserve district. All maturities. Demand. 1-3 months. 6 months. 9 months. 1 year. Over 1 year. In millions of dollars All districts. 1,903. 140. 294. 806. 306. 292. 64. Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis.... Kansas City.... Dallas San Francisco... 14 25 16 41 92 145 307 198 139 390 222 315. 5 5 5 5 6 6 14 21 13 16 12 33. 4 10 8 8 25 18 44 15 21 82 27 33. 3 6 2 20 31 51 148 94 58 223 89 83. (2). 1 1 1 3 9 21 64 18 24 34 32 85. 1 3 1 3 2 8 11 7 3 3 5. 1 (2). 2 19 41 26 44 20 32 57 63. 18. Percentage distribution within districts All districts. 100. 7. 15. 42. 16. 15. Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis. . . Kansas City.... Dallas San Francisco... 100 100 100 100 100 100 100 100 100 100 100 100. 35 20 29 12 6 4 4 11 9 4 6 10. 31 39 47 20 27 13 14 7 15 21 12 10. 19 22 13 48 34 35 48 47 42 57 40 27. 2 5 1 5 21 28 9 22. 4 3 4 8 10 14 21 9 17 9 14 27. 1 Loans are classified under the nearest maturity listed—for example, 5-month and 7-month loans are included with 6-month loans.. 2. 14. 8 26 20. Less than $0.5 million or 0.5 per cent. NOTE.—Details may not add to totals because of rounding.. 9 11 6 6 2 6 4 4 2 1 2 6.

(7) Federal Reserve Bulletin: February 1957. 131. FARM LOANS FOR CURRENT EXPENSES. of loans to poultry producers and one-eighth of the loans to dairymen were demand loans. These proportions, however, varied greatly among the Federal Reserve districts. Loans to cotton producers were longer in maturity than those for other farm types; slightly more than one-half carried maturities of nine months. The regional pattern of maturities reflected both regional variations in the proportions of farms of different types in each district and differences apparently not related to type-of-farm variation. For example, about two-fifths of the dollar loan volume to dairymen had six months to one year maturity in the San Francisco District in contrast with about one-tenth in the Northeastern districts. The original maturity of current-expense loans is often lengthened by renewal. Of the current-expense loans outstanding on June 30, 1956, 24 per cent of the dollar volume had been renewed by "plan," 10 per cent represented unplanned renewals, and the remaining 66 per cent had not been renewed up to the time of the Survey. The proportion of current-expense loans that had not been renewed was only slightly greater than the 60 per cent figure for loans to finance intermediate-term investments. Renewed current-expense loans averaged substantially larger in outstanding size than unrenewed loans. Loans renewed on a planned basis were nearly double the size of unrenewed loans, and loans carrying other renewals about one-third larger. On loans to cotton farmers, which had longer than average maturities, planned renewals were relatively few (Table 6). This was the only instance for which the dollar volume of unplanned renewals exceeded that of planned renewals. Conversely, loans to dairymen, where maturities were shorter,. showed above average frequency of planned renewals. Renewals were used less often in most Reserve districts in the South and in the San Francisco Federal Reserve District and more often in the Northeast and in the Kansas City District. Many of the borrowers with currentexpense loans outstanding at mid-1956 had been indebted to the bank for a considerable period. Nearly one-third had borrowed continuously since before 1954. Regionally, indebtedness periods tended to be longer in the Northeast and shorter in the South. Borrowers longest in debt tended to be older and in the higher net worth groups, and they had larger than average debts. About 6 per cent of the dollar volume of bank loans to farmers to pay current expenses included instalment repayment provisions. The high frequency of renewals, however, and the probability that some partial payments were made at time of renewal (the Survey did not obtain information on the extent of this practice) indicate that fewer than 94 per cent were made in expectation of a single one-time repayment. TABLE 6 RENEWALS OF CURRENT-EXPENSE FARM LOANS JUNE 30, 1956 BY TYPE OF FARM [Loans outstanding at insured commercial banks]. Type of farm. All types. Meat-animal Dairy Poultry Cash grain Cotton Other major product... General. Percentage distribution within groups. All loans (In millions of dollars). All. Not renewed. U,903. 100. 66. 24. 10. 576 92 20 222 216. 100 100 100 100 100 100 100. 59 55 72 67 87 75 62. 31 33 20 22 6 17 26. 10 11 7 11 7 7 12. 174. 596. ReRenewed newed— other by plan. 1 Includes $7 million for which type of farm was not reported. NOTE.—Details may not add to totals because of rounding..

(8) Federal Reserve Bulletin: February 1957. 132. FEDERAL RESERVE BULLETIN • FEBRUARY 1957 TABLE 7. REPAYMENT METHOD FOR CURRENT-EXPENSE LOANS, JUNE 30, 1956. FARM. BY TYPE OF FARM [Loans outstanding at insured commercial banks, in millions of dollars]. Type of farm. All types Meat-animal Dairy Poultry Cash grain Cotton Other major product. General. All currentexpense loans. All other loans Demand loans. Singlepayment. Instalment. Instalment loans as percentage of all loans. 11,903. 140. 1,652. 111. 6. 576 92 20 222 216 174 596. 48 12 5 16 7 18 35. 494 58 12 195 204 148 535. 35 22 3 12 6 7 27. 6 24 14 5 3 4 5. 1 Includes $7 million for which type of farm was not reported. NOTE.—Details may not add to totals because of rounding.. Instalment provisions were found with considerably higher than average frequency on loans to dairy producers and somewhat above average frequency on loans to poultry raisers (Table 7 ) . Of the 4 per cent of current-expense loans (by dollar volume) that carried maturities longer than one year, about half provided for instalment repayments, perhaps largely on an annual or irregular rather than a monthly basis. INTEREST RATES. Interest rates paid by farmers on loans for current expenses averaged 6.2 per cent per year. Over-all rates on loans for current. operations were about one percentage point above those on feeder livestock loans, but within similar size groups the spread was about 0.5 percentage point (Table 8). As with other types of farm loans made by banks, there was a rather steady decline in rates as the size of loan increased. The few current-expense loans with real estate security carried somewhat higher rates than the rest, particularly for the smaller loans. Instalment loans on which interest was charged on the outstanding balance had about the same rates as those for singlepayment loans, but instalment loans on which interest was charged on the original amount (only about 1 per cent of the dollar loan volume) had much higher rates. TABLE 8 INTEREST RATES ON CURRENT-EXPENSE FARM LOANS BY SIZE AND PURPOSE [Average annual rate at insured commercial banks, in per cent] Purpose of loan Size of loan *. All sizes Under $250 $250-$499 $500-$999 $l,000-$l,999 $2,000-54,999 $5,000-59,999 $10,000-524,999 $25,000 and over 1. All current expenses. Current operations. 6.2. 6.4. 5.5. 7.2 7.1 6.8 6.5 6.2 5.9 5.7 5.3. 7.2 7.1 6.8 6.6 6.3 6.0 5.8 5.4. 7.0 6.5 6.4 5.9 5.7 5.6 5.4 5.1. Buy feeder livestock. When originally made or (if renewed) when last renewed..

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