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Fed Surveys Provide Mixed Picture in Terms of Farm Income, Loan Demand

By: Bill Poquette, Editor-in-Chief

Agricultural surveys conducted by several Federal Reserve banks during the 2012 third quarter showed land values continuing to rise generally but a mixed picture in terms of farm income, loan demand and other factors.

Drought cut farm incomes and boosted loan demand, according to the Survey of Tenth District Agricultural Credit Conditions, but had little impact on land markets.

“Shrinking incomes spurred demand for farm operating loans as corn and soybean farmers and cow/calf operators searched for funds to pay for rising input costs,” reported Jason Henderson, Omaha branch executive, and Nathan Kauffman, economist, for the Kansas City Fed. “Bankers also approved more loan renewals and extensions compared with the previous quarter, as loan repayment rates dipped slightly. Capital spending plummeted in the third quarter and bankers expected further declines in the next quarter.”

Tenth District bankers indicated that demand for quality farmland outpaced supply, even with more land being put up for sale.

The neighboring St. Louis district reported similar findings. “Overall, responses from district bankers suggest that farm income and capital spending were significantly lower in the third- quarter 2012 compared with third-quarter 2011,” according to the bank’s Agricultural Finance Monitor survey.

“Meanwhile, both the value of non-irrigated cropland (or quality farmland) and the value of ranch and pastureland in the Eighth District were expected to rise slightly over the next three months,” the publication reported.

Demand for agricultural loans was expected to increase in the fourth quarter of 2012 relative to year-ago levels. Loan repayment rates were lower in the St. Louis and Louisville, Ky., zones, but in Memphis, which saw the highest rise in expected farm income levels, bankers expected loan demand to drop and repayments to rise.

In the Dallas Fed’s fourth-quarter Agricultural Survey, equal numbers of farmers and ranchers reported increased incomes and decreased incomes, and almost half of the respondents reported no change in the past three months. Agricultural land values also were mixed, with irrigated land values up again, ranchland values down slightly and dryland largely unchanged.

“Demand for agricultural loans continued to decline in the fourth quarter, as did loan renewals and extensions,” the publication reported. As was the case farther north, bankers stressed the need for rain to ease drought conditions in the Eleventh District.

Drought conditions lingered in the Chicago Fed’s Seventh District as well. They were projected to more adversely affect the net income of livestock producers than that of crop farmers; survey respondents actually predicted higher levels of net cash earnings for last fall and this winter compared to the year-ago period for crop farmers. District land values continued to rise in spite of the drought.

Demand for non-real estate loans was lower relative to a year ago in the Chicago bank’s survey, while repayment rates and rates of renewals and extensions were improved.

In the path of “sound profits for many farmers” in the Richmond Fed’s Fifth District, bankers generally reported that loan demand edged lower after stabilizing in the previous quarter, according to the bank’s Survey of Agricultural Credit Conditions. Requests for renewals or extensions declined further while the repayment rate accelerated.

“Turning to farmland values, third-quarter land prices were slightly below the previous quarter, but were somewhat above year-ago levels,” the survey’s respondents indicated.