Kansas City Fed-Farm Economy Seeks Footing11/10/2017
The farm economy in the seven states of the Tenth Federal Reserve District continued to show signs of stabilizing in the third quarter of 2017, even as financial stress continued to build and income continued to decline, according to the Kansas City Fed’s quarterly Survey of Agricultural Credit Conditions.
Farm income was down from a year ago, but the decrease was smaller than in recent years. Banker expectations of future declines in farm income moderated throughout the District in the third quarter.
Farmland values also continued to weaken, but only marginally. The value of nonirrigated and irrigated cropland declined 3 percent and 6 percent, respectively, from the previous year. Although the magnitudes of recent declines have yet to approach the magnitudes of the 1980s, the duration of the recent downturn in cropland values has approached that of the 1980s.
Agricultural credit conditions tightened alongside lower farm income and farmland values. Farm loan repayment rates declined for the 16th consecutive quarter, indicative of the prolonged downturn in the District’s farm economy. Although lenders continued to report increasing financial strain among their agricultural borrowers, bankers indicated that a sharp increase in the sale of farm assets was unlikely.
Read the complete Survey of Agricultural Credit Conditions at https://www.kansascityfed.org/research/indicatorsdata/agcreditsurvey/articles/2017/11-9-2017/farm-economy-seeks-footing.
St. Louis Fed report
Farm income continued to decline in the Midwest and Mid-South during the third quarter of 2017, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. On the other hand, quality farmland, ranchland, and pastureland values all rose.
The survey was conducted from Sept. 15-Sept. 30, 2017. The results presented are based on the responses from 29 agricultural banks within the boundaries of the Eighth Federal Reserve District. The Eighth District includes all or parts of seven Midwest and Mid-South states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.
Farm Income, Expenditures Decrease
Lenders continue to report year-over-year declines in farm income. Based on a diffusion index methodology with a base of 100 (results above 100 indicate proportionately higher values compared with the same quarter a year earlier; results lower than 100 indicate lower values), the third-quarter index value for farm income was 58. This marks the 15th consecutive quarter with a value below 100.
However, according to the report, “the value for the current quarter is a modest improvement from the value of 50 reported in the second quarter of 2017. Bankers were modestly more optimistic when asked about the prospects for farm income in the fourth quarter, yielding a diffusion index of 63.”
Quality Farmland Values Rise While Cash Rents Slump
Quality farmland values rose 1.1 percent in the third quarter, while ranchland and pastureland values increased close to 4 percent. In contrast, cash rents continued to fall. Cash rents for quality farmland fell by 1.2 percent, and rents for ranchland and pastureland fell by 3.2 percent. “Cash flow is projected to be really tight,” according to a Tennessee lender. “Should prices continue at their current low levels, prices of crop land and capital expenditures will continue to decline.”
Special Questions Regarding Loans and Online Services
This survey also included questions regarding the repayment of operating loans, the performance of loans that have been restructured in the past year and the availability and types of online services offered to customers. Close to 60 percent of lenders reported that operating loans were expected to have the largest repayment problems, while nearly 25 percent reported no expected increase in repayment. Regarding the performance of restructured loans, close to 70 percent reported that the restructuring has been in line with expectations.
In identifying the types of online services offered to their customers, close to 90 percent offer online transfers between accounts, 80 percent offer electronic bill payment, while 60 percent offer remote deposit capture. Only 28 percent offer online loan applications, while 8 percent reported they do not offer any online services.