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Improvement, Stability and Surprises: First Quarter Ag Conditions Vary by Region


June 14 - First-quarter 2013 surveys by the Federal Reserve Banks in the Midwest show regional variations in agriculture prosperity. While credit conditions continued their upward climb in some locations, in other areas they stayed about the same as the previous quarter. Then there were regions where credit conditions exceeded expectations. Below is a review of first-quarter credit conditions by Federal Reserve Bank district.

Chicago Fed

Credit conditions continued to improve for ag producers in the first quarter of 2013, according to the Federal Reserve Bank of Chicago’s May 2013 Ag Letter. According to the Ag Letter, 61 percent of respondents to a Chicago Fed survey reported their banks had more funds available to lend and less than 1 percent reported their banks had less. Similarly, 47 percent of bankers reported higher rates of repayment and only 4 percent reported lower rates.

The Chicago Fed found, however, that demand for non-real-estate loans in the first quarter fell to its lowest level since 1986. Only 13 percent of bankers noted higher loan demand compared with a year ago, and 46 percent noted lower demand. Furthermore, the share of banks below their desired level of lending rose to 89 percent. As of April 1, average interest rates had fallen to 4.91 percent for operating loans and 4.60 percent for ag real estate loans; both were record lows for the district.

“Good” farmland values kept rising in the seventh district during the first quarter of 2013, the Chicago Fed survey found, but signs of moderation in farmland value gains emerged. Ag land values appreciated 4 percent in the first quarter of 2013 relative to the fourth quarter of 2012. This quarterly increase was smaller than that of the previous ag survey the Chicago Fed conducted, but the year-over-year increase in ag land values was 15 percent in the first quarter — nearly matching the annual gain of 2012.

Dallas Fed

Similar to the Chicago Fed district, demand for loans in the eleventh district declined in the first quarter 2013 while loan repayment rates continued to rise. Volumes of loans declined across all types, with feeder cattle loans seeing the steepest drop, according to the quarterly survey of agricultural credit conditions by the Federal Reserve Bank of Dallas.

But unlike the Chicago Fed, agricultural land values were largely unchanged from fourth quarter 2012 levels, the Dallas Fed found. Ranchland and dryland values were slightly below year-ago levels, while irrigated cropland values, which are on an upward trend, were 10 percent above year-ago levels.

Kansas City Fed

Although land values continued to climb in the first quarter of 2013 in the tenth district  (cropland values rose 20 percent and ranchland values rose 14 percent year-over-year) rising production costs and falling crop prices curbed farm income growth in the first quarter of 2013, according to the Federal Reserve Bank of Kansas City’s Agricultural Credit Conditions survey. High feed and forage costs continued to stifle profitability in the livestock sector, the survey found.

Overall, farm credit conditions remained stable in the first quarter. The KC Fed found that capital spending was stronger than expected in the first quarter, but overall operating loan demand was weaker. In addition, demand for farm loan renewals and extensions was less. Loan repayment rates remained higher than the previous year. Surging farmland values have significantly reduced debt-to-asset ratios for many farmland owners, according to the KC Fed survey.

St. Louis Fed

In a survey of ag credit conditions in its district, the Federal Reserve Bank of St. Louis also found that first quarter 2013 farm income and capital spending were higher than expected. On average, lenders across the district reported higher than expected first quarter income and spending. Actual farm income, household spending and outlays for capital expenditures all surpassed expectations, as did loan repayment rates, the St. Louis Fed’s Agricultural Finance Monitor stated.

Demand for ag loans remained generally flat in the first quarter compared to a year ago. The St. Louis Fed report stated that the availability of funds to lend remains high as all zones other than the Little Rock zones report more lendable funds available this quarter relative to a year ago. The St. Louis Fed also noted that loan repayments across the district were higher than a year ago.

Farmland values in the eighth district, however, were found to be down slightly relative to the previous quarter’s price expectations. Lenders in the district estimated that overall quality farmland prices for the first quarter decreased by an average 2.3 percent to $5,111 per acre, compared with the fourth quarter 2012. Ranch or pastureland decreased by an average of 5.1 percent to $2,274 per acre.