Full text of Agricultural Finance Monitor : 2013 Second Quarter

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

The fifth quarterly survey of agricultural credit conditions was conducted by the Federal Reserve Bank of
St. Louis from June 11 through June 28; the results presented here are based on the responses from 48 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

Survey Results
On net, respondents indicated that second-quarter
District farm income, along with capital and household
spending, increased modestly relative to their respective
levels one year ago (see Table 1). In contrast, respondents
in the Louisville zone noted a decline in farm income over
the second quarter. Across the District, bankers expect farm
income to fall over the course of the next quarter compared
with the third quarter of 2012. Interestingly, Louisville
bankers feel that farm income will exhibit a reversal of the
second-quarter decline and increase in the third quarter.
Household spending levels were higher in the second quarter than a year ago across all zones in the Eighth District.
Respondents expect similar increases in the third quarter
compared with a year earlier. Respondents in the Little Rock
and Memphis zones reported that capital spending levels
were higher than last year.
Quality farmland values across the District averaged
$5,672 per acre in the second quarter of 2013. As seen in
Figure 1, this was a noticeable increase (11 percent) from
the first-quarter average of $5,111. Over the past four quarters, District quality farmland values increased by 20.6 percent. Quality farmland values over the past year appeared
to increase the most in the St. Louis zone.3 Figure 1 also

Selected Quotes from Banker Respondents
Across the Eighth Federal Reserve District
Drought conditions are continuing in our area. Pressure on hay
supplies is increasing and sell offs of livestock is ongoing. (Arkansas)
The poultry industry appears to have stabilized. Summer rains have
helped forage production and the early hay crop. If the rains continue, it should relieve some feed cost concerns. (Arkansas)
Strong cash grain markets are keeping the mood positive for this
year’s corn and soybean producers. Loan demand from good farm
operators is weak due to their cash position. Many area farmers
have greatly reduced debt the last few years and are reluctant to
incur new debt. (Illinois)
Liquidity is getting tighter for us. (Illinois)
Cattle prices are up, which has increased farm income but also
replacement costs. Crop prices are significantly lower than last year.
Depending on where you are and how last year’s crop yielded, your
income this year could be much higher or much lower. (Missouri)
NOTE: These are generally verbatim quotes, but some were lightly edited
to improve readability.

reveals that the average District ranch or pastureland value
per acre has also increased over the past four quarters, from
$2,349 per acre to $2,372 per acre, or 1.0 percent. A proportionately larger number of respondents expect quality
farmland and ranch or pastureland land values to increase
in the third quarter relative to a year earlier.
Figure 2 shows average cash rents per acre for quality
farmland and ranch or pastureland over the four quarters
ending in the second quarter of 2013. In the second quarter,
cash rents for quality farmland averaged $183 per acre, 6.7
percent more than the first-quarter average and 12.9 percent more than four quarters earlier. Generally speaking,

The survey is produced by staff at the Federal Reserve Bank of St. Louis: Gary Corner, Senior Examiner, Bank Supervision and Regulation
Division; and Lowell Ricketts, 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 second 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:Q2 (actual)
2013:Q3 (expected)
Household spending
2013:Q2 (actual)
2013:Q3 (expected)
Capital spending
2013:Q2 (actual)
2013:Q3 (expected)

Little Rock

Louisville

Memphis

District

104
88

113
63

80
140

138
100

108
91

115
113

113
125

120
140

138
113

119
118

100
100

113
88

100
120

138
113

109
102

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

$7,316
124
$2,913
106

$2,867
133
$1,961
100

$3,450
120
$2,333
125

$3,131
138
$1,757
114

$5,672
127
$2,372
108

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

$208
117
$54
106

$128
117
$60
117

$163
125
$88
100

$140
113
$52
117

$183
117
$57
109

cash rents for quality farmland rose in the second quarter,
while they fell for ranch or pastureland. Respondents expect
quality farmland and ranch or pastureland cash rents to
increase during the third quarter from a year earlier. However, anecdotal information collected from other sources
suggests some shift in cash rents toward a variable or profitsharing basis. Readers are cautioned that this movement
may not be fully captured in cash rent data.4
On net, District bankers’ past expectations of secondquarter household spending, capital spending, availability
of funds, and loan repayment rates were essentially realized (see Table 2). However, respondents in the Memphis

zone were pleasantly surprised with better-than-expected
farm income, household spending, capital spending, and
funds availability. Predictions of farm income in the second
quarter proved to be more variable than respondents
expected. Still, realized values were better than expected
for all of the zones except for Louisville. Loan demand
failed to meet expectations for the St. Louis, Little Rock,
and Louisville zones.
On average, demand for agricultural credit across the
District in the second quarter was roughly unchanged compared with a year ago (see Table 3). Declines were reported
in the St. Louis and Louisville zones, while loan demand

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 3

Figure 1
Average Land Values across the Eighth District

Figure 2
Average Cash Rents across the Eighth District

Per Acre

Per Acre

$6,000

$200

$5,000

$150
$4,000
$3,000

$100

$2,000

$50
$1,000
$0
2012:Q2

2012:Q3
Quality Farmland

2012:Q4

2013:Q1

$0

2013:Q2

2012:Q3

2012:Q2

Quality Farmland

Ranchland or Pastureland

2012:Q4

2013:Q1

2013:Q2

Ranchland or Pastureland

Table 2
Expected and Actual 2013:Q2 Variables (versus year-ago levels)

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

St. Louis

Little Rock

Louisville

Memphis

District

69
81
13

100
133
33

100
67
–33

100
140
40

81
96
15

106
106
0

100
100
0

100
100
0

100
120
20

104
108
4

87
87
0

133
100
–33

67
100
33

100
140
40

92
100
8

129
79
–50

133
100
–33

100
67
–33

80
80
0

116
80
–36

143
136
–7

100
100
0

133
133
0

100
140
40

128
132
4

114
129
14

100
100
0

100
100
0

60
60
0

100
108
8

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 2013:Q2 and 2013:Q1 surveys. Components may
not sum to totals due to rounding.

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 4

Table 3
Lending Conditions

Loans (versus year-ago levels)
Demand for loans
2013:Q2 (actual)
2013:Q3 (expected)
Availability of funds
2013:Q2 (actual)
2013:Q3 (expected)
Rate of loan repayment
2013:Q2 (actual)
2013:Q3 (expected)
Interest rates (%)
Operating
Fixed
Variable
Machinery/intermediate-term
Fixed
Variable
Farm real estate
Fixed
Variable

St. Louis

Little Rock

89
118

113
129

126
114

Louisville

Memphis

District

80
120

113
129

96
122

113
100

120
120

125
100

123
110

119
100

100
100

120
120

75
100

108
103

5.01
4.53

6.54
6.19

4.61
5.67

5.92
5.24

5.38
4.97

5.18
4.72

6.71
6.56

5.69
5.48

5.98
5.65

5.60
5.19

4.80
4.38

6.14
5.63

5.35
5.18

5.54
4.75

5.21
4.69

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.

was up modestly in the Little Rock and Memphis zones.
Respondents expect loan demand to pick up in the third
quarter of this year relative to a year earlier. Respondents
reported that more funds were available to prospective
borrowers than at the same time last year, as noted by
index values greater than 100 in Table 3. Respondents in
the St. Louis and Louisville zones expect higher relative
levels in the third quarter, while the other zones expect
values to be the same as those from a year earlier. Rates
of loan repayment in the District were roughly the same
compared with the second quarter of last year. In contrast,
bankers in the Memphis zone noted lower rates of repay-

ment in the second quarter relative to the same time last
year. On net, interest rates across the District on all types of
loans increased modestly in the second quarter compared
with the first quarter. Within the zones there was considerably more variation. However, on average, interest rates
on variable-rate loans tended to increase by slightly more
than fixed-rate loans in the second quarter. Recall, again,
that the relatively low response rates for the individual
zones entails a higher-than-normal margin of error. ■
NOTE: There were no special questions for this survey.
See Notes and District map on p. 5.

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 5

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

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. We
may eliminate the zone-by-zone responses unless the response rate improves.

IL
Columbia
Jefferson City

3

Since the composition and number of survey respondents tends to change each
quarter, it might be more accurate to compare the results reported from the same
respondents to this survey and the previous survey (first quarter of 2013). Such
an exercise reveals that the average land price of quality farmland in the District
was $5,086 per acre in the second quarter of 2013, a 4 percent decrease from the
$5,297 per acre average reported in the first quarter of 2013.

St. Louis

MISSOURI

Evansville
Owensboro

Springfield
Bowling Green

Fayetteville-Springdale-Rogers
Jonesboro
Jackson

ARKAN
ARKANSAS
ANSAS
AS

Fort Smith

4

In general, variable contracts set a minimum cash rent. In addition to the
minimum payment, the landowner may be paid a “bonus component” based on
a percentage of crop revenue. In some instances, the calculation of crop revenue
may include the proceeds from crop insurance.

Louisville-Jefferson County
Elizabethtown

Memphis

Little Rock-North Little Rock
Hot Springs
Pine Bluff

Texarkana

M SSISSIP
MIS
S SS
SIPPI
S
IP

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

research.stlouisfed.org