Full text of Agricultural Finance Monitor : 2013 First Quarter

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Agricultural FINANCE Monitor
agricultural credit conditions in the Eighth Federal Reserve District
2013 ■ First Quarter

The fourth quarterly survey of agricultural credit conditions was conducted by the Federal Reserve Bank of
St. Louis from March 15 through March 29; the results
presented here are based on the responses from 55 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.2
In addition to our standard survey questions, in this
edition of the Agricultural Finance Monitor we asked three
special questions aimed at assessing potential changes in
farm sector risks. The first two questions asked about
changes in the financial condition(s) of two groups: crop
producers and other agricultural producers (such as livestock and poultry producers) that rely on crops as inputs.
The third question asked respondents to identify the most
significant risk(s) facing the farm sector for either producers or lenders this year.

Selected Quotes from Banker Respondents
Across the Eighth Federal Reserve District
Most of the 2013 crop inputs have been paid and they [farmers]
still have low operating loan balances. But there is a group of young
farmers that have only seen the "buy today because it will be higher
tomorrow" and they are accumulating some high debt totals. If
asset values cycle down, they could be put in a difficult financial
situation with a resulting high debt ratio and large debt service
requirements. The recipe for lower land values will be lower grain
prices, meaning lower net income to service those debt requirements. Very similar to my early lending years of the early 1980s.
(Illinois)
Uncertainty associated with the Farm Bill is causing some farmers
some concern with regards to what lies ahead. (Illinois)
This segment appears poised for further improvement in 2014 and
beyond. (Tennessee)
NOTE: These are generally verbatim quotes, but some were lightly edited
to improve readability.

Survey Results
On net, respondents indicated that first-quarter District
farm income, along with capital and household spending,
generally increased relative to their respective levels one
year ago (see Table 1). Across the District, bankers cautiously expect farm income in the next quarter (second
quarter of 2013) to be the same as or slightly below yearago levels. Similarly, they also anticipate that capital and
household spending levels in the next quarter will be about
on par with one year ago.
Surprisingly, reported quality farmland, ranchland, or
pastureland prices are down slightly relative to the prices
indicated in the fourth quarter of 2012 (see Table 1).3 In
this quarter’s survey, the reported value of quality farmland

decreased by an average of 2.3 percent and that of ranchland or pastureland decreased by an average of 5.1 percent
from last quarter. Similarly, cash rents of quality farmland
declined an average of 8.6 percent and that of ranchland
or pastureland reportedly fell an average of 4.5 percent.
As in our previous three surveys, on net, bankers expect
land values and cash rents to continue rising. However, it
appears that bankers’ expectations for future land value
increases have moderated somewhat as fewer responses
indicate that agricultural land values will continue to climb
over the next quarter. Following that trend, bankers have
also moderately tempered their short-term expectations
for cash rents across the District.

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 and Lowell Ricketts, Senior Research Associates, 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 first quarter of 2013. 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
2013:Q1 (actual)
2013:Q2 (expected)
Household spending
2013:Q1 (actual)
2013:Q2 (expected)
Capital spending
2013:Q1 (actual)
2013:Q2 (expected)

Little Rock

Louisville

Memphis

District

107
70

120
100

114
100

150
100

118
83

126
100

120
100

83
100

150
100

125
100

104
89

140
120

143
100

150
100

123
96

Land values (per acre)
Quality farmland
Expected 3-month trend
Ranchland or pastureland
Expected 3-month trend

$6,293
121
$2,508
117

$2,225
100
$2,133
100

$4,775
113
$1,983
117

$2,985
130
$1,844
138

$5,111
120
$2,274
120

Cash rents (per acre)
Quality farmland
Expected 3-month trend
Ranchland or pastureland
Expected 3-month trend

$193
130
$65
119

$90
100
$73
100

$186
138
$73
100

$139
100
$52
100

$171
122
$64
111

Excluding farmland values, Eighth District bankers
continue to report conditions similar to the trends they
expected, as revealed in the first-quarter 2013 survey
(see Table 2). Importantly, actual farm income, household
spending, and outlays for capital expenditures all surpassed
expectations of District bankers, as did loan repayment
rates. Table 2 also reveals that loan demand was softer than
expected, although loan demand in the Memphis zone
improved, albeit at a slower rate than anticipated. High
commodity prices and record crop insurance payments
could have had a distorting effect on loan demand.

Overall, District demand for agricultural credit was
generally flat in the first quarter of 2013 relative to one
year ago (see Table 3). In contrast, bankers in the St. Louis
zone generally experienced a decline in loan demand,
whereas those in the Memphis zone reported an increase.
Short-term expectations for the next quarter range from
flat loan demand in the Louisville and Memphis zones to
anticipated loan growth in the St. Louis and Little Rock
zones, relative to one year ago. The availability of funds to
lend remains high as all zones except the Little Rock zone
report more lendable funds available this quarter relative

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 3

Table 2
Expected and Actual 2013:Q1 Variables (versus year-ago levels)
St. Louis
Farm income
Expected
Actual
Difference
Household spending
Expected
Actual
Difference
Capital spending
Expected
Actual
Difference
Demand for loans
Expected
Actual
Difference
Availability of funds
Expected
Actual
Difference
Rate of loan repayment
Expected
Actual
Difference

Little Rock

Louisville

Memphis

District

71
100
29

100
120
20

83
100
17

113
163
50

86
117
31

106
129
24

120
120
0

120
80
–40

100
163
63

109
129
20

82
106
24

100
140
40

83
133
50

100
163
63

89
128
39

137
84
–53

120
100
–20

129
100
–29

138
125
–13

133
97
–36

105
147
42

100
100
0

129
129
0

125
138
13

114
138
24

89
116
26

100
100
0

100
114
14

113
100
–13

97
111
14

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:Q4 and 2013:Q1 surveys. Components may
not sum to totals due to rounding.

to one year ago. Loan repayments, on the other hand, are
generally higher across the District compared with one
year ago. Expectations point to similar levels of funds availability and loan repayments in the coming quarter as were
observed one year ago. Interest rates, both fixed and variable, continue to show modest declines.
While not captured during this survey period, wet
weather conditions have delayed the planting of corn crops
by several weeks in affected District areas. This delay in
planting has the potential to affect harvest yields and farm
income this year, although, as with the 2012 drought, federal crop insurance serves as an effective risk management
instrument for weather-related conditions.

Special Questions
Given the impact of severe drought conditions over
much of the District last year, we asked Eighth District
bankers some additional questions to gauge the change(s)
in the financial condition of crop producers and other
agricultural producers that rely on crops as a production
input (such as feed) as commodity prices spiked. Our last
question sought some insight as to the most significant
risks that bankers foresee for the farm sector this year.
In the District as a whole, 51 percent of respondents
indicated that the financial condition of crop producers
improved either modestly or significantly from one year
ago. In addition, another 31 percent of respondents indicated no change in the financial condition of crop producers, again from one year ago. Despite the pervasive drought
conditions in 2012, only 18 percent of respondents reported

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 4

Table 3
Lending Conditions

Loans (versus year-ago levels)
Demand for loans
2013:Q1 (actual)
2013:Q2 (expected)
Availability of funds
2013:Q1 (actual)
2013:Q2 (expected)
Rate of loan repayment
2013:Q1 (actual)
2013:Q2 (expected)
Interest rates (%)
Operating
Fixed
Variable
Machinery/intermediate-term
Fixed
Variable
Farm real estate
Fixed
Variable

St. Louis

Little Rock

85
124

100
120

159
136

Louisville

Memphis

District

100
100

120
100

96
115

100
100

125
114

140
100

145
122

115
108

100
100

125
100

100
78

113
100

4.92
4.54

6.58
6.63

5.58
5.09

6.01
5.37

5.36
4.95

5.15
4.70

6.58
7.25

5.64
5.35

6.27
5.53

5.55
5.06

4.71
4.29

5.83
5.75

5.44
4.81

5.72
5.25

5.12
4.66

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.

a modest deterioration in the financial condition of crop
producers from one year ago. No respondents observed a
significant deterioration in the financial condition of crop
producers. On net, survey responses seem to confirm that
elevated crop prices and record-level crop insurance payments supported farm income in 2012.
With regard to livestock and poultry (protein) producers, 21 percent of respondents reported modest or better
improvement in the financial condition of borrowers from
one year ago. The most common response, however, was
no change in financial condition: 47 percent of respondents
indicated no change from one year ago. On the other hand,
about one-third of bankers have observed at least modest
or more significant deterioration in the financial condition
of protein producers from one year ago. Survey responses
seem to confirm that most protein producers are “weathering the storm” of higher input costs but have not fared as
well as crop producers.

Turning to farm sector risks, half of the District
respondents foresee a weak economy as the most significant risk to the farm sector in 2013. Next, more than onethird of bankers consider an increase in producer input
costs as the most significant risk. Of note, only 2 percent
of bankers identified a decline in land values as the most
significant risk in 2013. Likewise, an increase in interest
rates was also viewed by few (2 percent) as the most significant risk this year. Under “other,” a few bankers cited
drought and commodity prices as the most significant
risks. Thus, it appears (i) a weak economy that potentially
limits revenue growth in the farm sector followed by, or
coincident with, (ii) a rise in input costs that squeezes profit
margins are the most significant farm sector risks foreseen
by District respondents for 2013. ■

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 5

Table 4
Financial Condition and Balance of Risks
St. Louis

Little Rock

Louisville

Memphis

District

Change in financial condition of
crop producers (from one year ago)
Significant improvement
Modest improvement
No change
Modest deterioration
Significant deterioration

11
33
30
26
0

20
0
80
0
0

14
57
14
14
0

40
30
20
10
0

18
33
31
18
0

Change in financial condition of
nonproducer borrowers (from one year ago)
Significant improvement
Modest improvement
No change
Modest deterioration
Significant deterioration

0
16
36
40
8

20
0
40
40
0

0
29
57
14
0

10
20
70
0
0

4
17
47
28
4

Most significant risk to farming sector
in 2013
Decline in land prices
Increase in interest rates
Increase in input prices
Weak economy
Other

0
4
30
52
15

0
0
75
25
0

0
0
29
71
0

10
0
40
40
10

2
2
35
50
10

NOTE: The table reports reponses as a percent of the total responses to each question.

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.
IL

2

Readers are also cautioned that the number of responses in each zone is relatively small. Statistically, this tends to suggest that the responses in each zone
have a larger plus-or-minus margin of error than for the District as a whole.
3

Since the composition and number of survey respondents tends to change each
quarter, an alternative calculation is to compare the results reported from the
same respondents with this survey and the previous survey (fourth quarter of
2012). Such an exercise reveals that the average land price of quality farmland
was $5,242 per acre in the first quarter of 2013, an 8.1 percent increase from the
$4,849 per acre average reported in the fourth quarter of 2012.

Columbia
Jefferson City

St. Louis

MISSOURI

Evansville
Owensboro

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 SSISSIP
MIS
S SS
SIPPI
S
IP

Posted on April 15, 2013
Views expressed do not necessarily reflect official positions of the Federal Reserve System.

research.stlouisfed.org

Louisville-Jefferson County
Elizabethtown