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Agricultural FINANCE Monitor
agricultural credit conditions in the Eighth Federal Reserve District
2012 ■ Third Quarter

The second quarterly survey of agricultural credit
conditions was conducted by the Federal Reserve Bank of
St. Louis from September 15 through September 28; the
results presented here are based on the responses from 75
agricultural banks within the boundaries of the Eighth
Federal Reserve District.1 The Eighth District includes all
or parts of seven Midwest and Mid-South states. Because
these initial data are not adjusted for any seasonal irregularities (should they exist), users are cautioned to interpret
the results carefully. In particular, users are cautioned
against drawing firm conclusions about longer-run trends
in farmland values and agricultural lending conditions.
In addition to our standard survey questions, we asked
two special drought-related questions for this edition of
the Agricultural Finance Monitor. In particular, we were
interested in knowing (i) the extent of crop insurance usage
this year and (ii) the extent to which crop insurance was
able to offset the expected decline in farm incomes resulting from the drought.

Survey Results
District farm income and capital spending were down
significantly in the third quarter of 2012 relative to yearago levels (see Table 1), though there was some disparity
across zones. The St. Louis zone showed the largest dropoff from one year ago, while bankers in the Little Rock
and Louisville zones also reported declines from a year
earlier. By contrast, bankers in the Memphis zone reported
both higher income and capital spending relative to 2011.
Household spending across the District was more mixed;
bankers in the St. Louis and Little Rock zones reported
lower levels of household spending compared with a year
earlier and bankers in the Louisville and Memphis zones
reported higher levels.
Expectations for income and spending in the next
quarter, however, display a sharp contrast in responses
across zones. Bankers in the Little Rock and Memphis

Selected Quotes from Banker Respondents
Across the Eighth Federal Reserve District
Area farmers benefited from established irrigation practices, higher
market prices, and weather conditions that led to record yields. Our
farmers realize that this will probably not be an ongoing pattern.
(Arkansas)
Farmers with crop insurance might make more money per acre than
last year. Livestock farmers that need to purchase most of their feed
will be hurt the most by this year’s drought. (Illinois)
The overall impact of the drought on the level of income for grain
producers is going to be minimal. By the time the fall price is set on
crop revenue insurance, our producers will see incomes near to
slightly above spring income estimates. (Indiana)
Drought will have a large negative impact on row crop (corn and
soybean) producers and cattle producers, but at present it looks like
tobacco (burley) will be up this year. (Kentucky)
We require crop insurance on all operating loans. We expect to see
income decrease from last year’s levels. I would also expect less capital spending due to the short crop this year. (Missouri)
Our region was not affected by the drought, and we are currently
harvesting one of the best-yielding crops in quite some time. This
fact, along with the above-normal commodity prices, will have an
incredibly positive impact on the farming situation. (Mississippi)
Most of our producers expect yields to be adversely impacted, down
20 to 25 percent. Prices are better for commodities. Overall net
income for most larger producers will be diminished by 8 to 10 percent from previous years. (Tennessee)
NOTE: These are generally verbatim quotes, but some were lightly edited
to improve readability.

The survey is produced by staff at the Federal Reserve Bank of St. Louis: Gary Corner, Senior Examiner, Bank Supervision and Regulation
Division; and Brett Fawley, Senior Research Associate, and Kevin L. Kliesen, Business Economist and Research Officer, Research Division.
We thank staff at the Federal Reserve Bank of Kansas City for initial and ongoing assistance with the agricultural credit survey.
If you have comments or questions, please contact Kevin Kliesen at kevin.l.kliesen@stls.frb.org.
The Eighth Federal Reserve District is headquartered in St. Louis and includes branch offices in Little Rock, Louisville, and Memphis;
the District includes the state of Arkansas and portions of Illinois, Indiana, Kentucky, Mississippi, Missouri, and Tennessee.

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 2

In the survey, bankers were asked two types of questions: (i) estimates of current dollar values and interest rates and (ii) expectations for
future values. Dollar values and rates refer to the third quarter of 2012. Regarding expectations for future values, bankers were asked
whether they expect values to increase, decrease, or remain constant (either relative to a year ago or relative to current values; see table
descriptions). A “diffusion index” value was then created for “income and expenditures” and for the 3-month trends in “land values” and “cash
rents” (per acre). The diffusion index was created by subtracting the percent of bankers that responded “decrease” from the percent that
responded “increase” and then adding 100. Index values from 0 to 99 indicate overall expectations of decreasing values; index values from
101 to 200 indicate overall expectations of increasing values; and an index value of 100 indicates an even split.

Table 1
Income and Expenditures, Land Values, and Cash Rents
St. Louis
Income and expenditures
(versus year-ago levels)
Farm income
2012:Q3
2012:Q4
Household spending
2012:Q3
2012:Q4
Capital spending
2012:Q3
2012:Q4

Little Rock

Louisville

Memphis

District

62
58

78
111

71
57

136
125

80
77

85
84

89
122

114
129

136
125

99
102

44
55

78
122

57
29

136
125

68
74

Land values
Quality farmland
Expected 3-month trend
Ranchland or pastureland
Expected 3-month trend

$6,003
124
$2,621
112

$2,807
125
$2,094
111

$4,138
129
$2,300
133

$3,082
136
$1,695
82

$4,886
127
$2,345
108

Cash rents
Quality farmland
Expected 3-month trend
Ranchland or pastureland
Expected 3-month trend

$208
138
$60
120

$99
114
$48
89

$173
157
$67
133

$122
121
$48
100

$174
134
$56
113

zones expect income and household and capital spending
to all be above year-ago levels in the fourth quarter of
2012. Meanwhile, bankers in the St. Louis and Louisville
zones are generally even more pessimistic about the fourth
quarter of 2012 than the third quarter. In the one exception, Louisville bankers expect higher household spending
in the next quarter relative to the same quarter last year.
Bankers were then asked about land values and cash
rents in their area. Compared with the previous quarter’s
survey, quality farmland values (nonirrigated) in the third
quarter of 2012 were up 5.2 percent from a year earlier in

the St. Louis zone; up 1.6 percent in the Little Rock zone;
down 3.4 percent in the Louisville zone; and up 5.9 percent
in the Memphis zone.2 The average value of land (quality
farmland, ranchland or pastureland ) across the District
was 4 percent higher. In terms of their expectations over
the next three months, bankers expect land values and cash
rents to continue to rise in the fourth quarter of 2012. Gains
in quality farmland are generally expected to outpace gains
in ranchland or pastureland (nonirrigated) in almost all
zones.
Overall, bankers continue to report improvement in
the availability of loans across the District (see Table 2).

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 3

Table 2
Lending Conditions
St. Louis
Loans (versus year-ago levels)
Demand for loans
2012:Q3
2012:Q4
Availability of funds
2012:Q3
2012:Q4
Rate of loan repayment
2012:Q3
2012:Q4
Interest rates (%)
Operating
Fixed
Variable
Machinery/intermediate-term
Fixed
Variable
Farm real estate
Fixed
Variable

Little Rock

Louisville

Memphis

District

92
133

133
122

100
143

107
77

101
122

128
119

111
122

114
114

129
123

125
120

100
81

133
111

71
86

107
123

103
94

5.31
4.88

6.53
6.28

5.71
5.25

6.28
5.50

5.70
5.25

5.59
5.13

6.69
6.22

6.00
5.39

6.65
5.85

5.99
5.46

5.14
4.71

6.11
5.84

5.63
5.32

5.98
5.29

5.49
5.04

NOTE: Demand for loans, availability of funds, and rate of loan repayment are reported using a diffusion index. See the note above Table 1 for details about
interpreting diffusion indexes.

As seen in the far-right column, loan demand and the rate
of loan repayment across the District in the third quarter
this year was similar to year-ago levels, though there was
some variability across zones. For example, bankers in the
Little Rock zone reported much higher loan demand in
the third quarter compared with a year earlier. Bankers
expect higher demand for loans and lower loan repayment rates (relative to last year) in the fourth quarter. The
Memphis zone is a notable exception in terms of expected
loan demand in the fourth quarter of 2012. Recall from
Table 1 that the Memphis zone also reported the largest
gains in farm income of the four zones. Meanwhile, the
St. Louis and Louisville zones drive the expected decrease
in loan repayment rates going forward. Interest rates remain
comparable to the previous quarter, though modestly lower,
with fixed rates generally 40 basis points above variable
rates.
The third table provides some assessment of whether
economic and financial conditions in the current survey
evolved in a manner that was expected in the previous
survey. Looking at the final column in Table 3, responses

in the current survey suggest that bankers’ expectations
were generally consistent with those from the previous
quarter. There were some exceptions. For example, loan
demand and capital spending were uniformly lower than
expected. Bankers in Little Rock revealed lower levels of
capital spending, fund availability, and household spending
than they anticipated, while farm income and capital
spending was weaker in the St. Louis zone than originally
expected.

Special Questions
The severe drought that affected much of the United
States this summer has resulted in significant declines in
crop production, particularly in the St. Louis and Louisville
zones.3 Weather volatility this year has underscored the
importance of crop insurance as a risk management tool.
Crop insurance today is a public-private partnership
between the U.S. government and private insurance companies. Government subsidies reduce the cost of this program to farmers, which has resulted in its widespread usage.

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 4

Table 3
Expected and Realized 2012:Q3 Variables (versus year-ago levels)
Variable
Farm income
Expected
Realized
Difference
Household spending
Expected
Realized
Difference
Capital spending
Expected
Realized
Difference
Demand for loans
Expected
Realized
Difference
Availability of funds
Expected
Realized
Difference
Rate of loan repayment
Expected
Realized
Difference

St. Louis

Little Rock

Louisville

Memphis

District

74
65
–10

75
75
0

71
71
0

115
131
15

83
81
–2

83
87
3

125
88
–38

86
114
29

138
131
–8

102
100
–2

71
48
–23

88
75
–13

71
57
–14

131
131
0

86
71
–15

103
93
–10

133
133
0

100
100
0

129
107
–21

113
103
–10

117
124
7

138
100
–38

129
114
–14

100
129
29

117
121
3

103
97
–7

125
125
0

86
71
–14

86
107
21

100
100
0

NOTE: All variables are reported using a diffusion index. See the note above Table 1 for details about interpreting diffusion indexes. For comparison purposes,
we compute diffusion indexes using only those banks that responded to the given question in both the 2012:Q2 and 2012:Q3 surveys. Components may
not sum to totals due to rounding.

Table 4
Impact of the Drought and Prevalence of Crop Insurance
Variable
Loans covered by crop insurance
Average across respondents (%)
Share answering 0-50%
Share answering 51-100%
Overall effect of drought on farm income
No effect or increase
Decrease

St. Louis

Little Rock

Louisville

Memphis

District

77
16
84

35
60
40

88
0
100

70
31
69

73
21
79

8
92

33
67

0
100

50
50

19
81

NOTE: Bankers were asked what fraction of their agricultural production loans is covered by crop insurance and how they expected the drought to affect
overall farm income in their area in 2012. The top panel reports the average response to the first question, as well as the percent of bankers reporting that
crop insurance covered over (less than) 50% of their agricultural production loans. The bottom panel reports the percent of bankers who expected the
drought to decrease (increase or not affect) 2012 farm income.

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 5

Due to high levels of participation in the federal crop insurance program, systemic losses by crop producers as a result
of the 2012 drought will likely be mitigated. This quarter,
we asked two special questions to gauge the impact of the
drought on farm income across the District. In particular,
we asked bankers to estimate the share of their agricultural
production loans that were covered by crop insurance. We
then asked them how they thought the drought directly
impacted farm income in their area. Table 4 summarizes
the responses.
Overall, bankers’ responses suggest substantial variability
in the effects of the summer drought across both geography
and enterprise. Close to 100 percent of respondents in the
St. Louis and Louisville zones reported that the drought
would decrease farm income, while this number was closer
to 50 percent in the Little Rock and Memphis zones. Many
bankers in these zones responded that the drought would
increase income.
Much of the geographical discrepancy represents a difference in irrigation practices throughout the District. A
larger share of farmland in the Little Rock and Memphis
zones is irrigated. One Arkansas banker noted that “area
farmers benefited from established irrigation practices,
higher market prices, and weather conditions that led to
record yields.” Still, the drought did have an impact on
profit margins in these areas. Another Arkansas banker
noted that “while income will not be significantly reduced
due to the drought, profits will be greatly reduced due to
irrigation expenses related to fuel.”
Nonirrigated crops in the St. Louis and Louisville zones
were harder hit by the drought, but many bankers expect
crop insurance to alleviate the overall impact on income.
One Missouri banker declared that “crop insurance is going
to be the saving grace for this year.” Table 4 shows that
bankers in these zones reported that roughly 80 percent to
90 percent of their loans were covered by crop insurance.
One banker noted that they require crop insurance on all
operating loans. An Illinois banker remarked that “reduced
crop yields due to drought will be offset by higher prices
and crop insurance. We expect most farmers to come
through in good shape.” And one Illinois banker even commented that “farmers with crop insurance might make more
money per acre than last year.” Some Illinois bankers also
commented that most crops are sold the year after harvest
in their areas, so farmers will probably come through 2012
in decent shape but may struggle in 2013 even with a good
crop season.

ILL
Columbia
Jefferson City

St. Louis

MISSOURI

Evansville
Owensboro

Louisville-Jefferson County
Elizabethtown

Springfield
Bowling Green

Fayetteville-Springdale-Rogers
Jonesboro
Jackson

ARKAN
ARKANSAS
ANSAS
AS

Fort Smith

Memphis

Little Rock-North Little Rock
Hot Springs
Pine Bluff

Texarkana

M SS
MIS
SIS
SS
SIPPI
S
IPPI

While farmers will benefit from crop insurance, many
livestock farmers are facing increasingly high feed costs
because of the drought. An Arkansas banker noted that
“drought conditions have caused a herd reduction and a
major increase in operating expenses for those remaining
due to the costs associated with hay acquisition.” An Illinois
banker similarly concluded that “livestock farmers that need
to purchase most of their feed will be hurt the most by this
year’s drought.” ■

Notes
1

An agricultural bank, for survey purposes, is defined as a bank for which at
least 15 percent of its total loans outstanding finances agricultural production or
purchases of farmland, farm equipment, or farm structures.

2

When comparing the current survey results with those of the previous survey,
we consider only the responses of those bankers who responded to both the current and previous survey.

3

For further details on the drought’s impact on the Eighth District, see Corner,
Gary S. “The Drought’s Impact on Eighth District Agricultural Conditions.”
Federal Reserve Bank of St. Louis Central Banker, Fall 2012, pp. 1, 5-10;
www.stlouisfed.org/publications/cb/articles/?id=1285.

Posted on November 15, 2012
Views expressed do not necessarily reflect official positions of the Federal Reserve System.

research.stlouisfed.org