Full text of Agricultural Finance Monitor : 2014 First Quarter

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Agricultural FINANCE Monitor
agricultural credit conditions in the Eighth Federal Reserve District
2014 ■ First Quarter

The eighth quarterly survey of agricultural credit conditions was conducted by the Federal Reserve Bank of
St. Louis from March 17, 2014, through March 31, 2014.
The results presented here are based on the responses from
49 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
this survey is relatively new, these data are not adjusted
for any seasonal patterns (should they exist). Accordingly,
users are cautioned to interpret the results carefully. Users
are also cautioned against drawing firm conclusions about
longer-run trends in farmland values and agricultural lending conditions.2

Executive Summary
Farm income declined in the first quarter of 2014 from
a year earlier according to a survey of 49 agricultural banks
in the Eighth District. However, farm income in the first
quarter turned out to be modestly stronger than respondents expected three months earlier. Quality farmland
prices fell slightly in the first quarter, a reversal of the gain
reported in the fourth quarter of 2013. Despite the decline
in value, quality farmland prices in the first quarter were
7.5 percent higher than a year earlier. Proportionately more
respondents continue to expect farm income and quality
farmland values to decline over the next three months compared with year-earlier levels. Similarly, respondents also
expect farm household expenditures and farm equipment
expenditures in the second quarter of 2014 to be lower than
a year earlier. This survey included one special question:
The vast majority of bankers’ responses indicate that the
expectation of lower farm income in 2014 has not changed
the highly competitive agriculture loan market.

Selected Quotes from Banker Respondents
Across the Eighth Federal Reserve District
“Anticipated lack of direct payments [will have an effect].”
(Arkansas)
“Certain segments of farmers will have less cash flow to support
operations, resulting in slower (loan) payments and possibly further
consolidation of the industry.” (Arkansas)
“Some poultry company expansion has increased capital spending.”
(Arkansas)
“The overall farm economy is still good. Farmers are spending more
conservatively. Land purchases are being made only by those with
lots of cash or equity. No highly leveraged buyers.” (Missouri)
NOTE: These are generally verbatim quotes, but some were lightly edited
to improve readability.

Survey Results
Farm Income and Expenditures
Farm income decreased in the first quarter of 2014 compared with the same period a year earlier. Farm income
levels in the second quarter of 2014 are also expected to be
lower than a year earlier (index value of 80). Nonetheless,
the forward-looking index for the second quarter of 2014
is slightly less pessimistic than the expectations were for
the first quarter (index value of 76). Readers are cautioned
that farm income is highly volatile and subject to seasonal
patterns that occur in the agricultural sector.
Table 1 also shows that a slight majority of survey
respondents (index value of 102) believe that farm household
spending increased in the first quarter of 2014 compared
with a year earlier. By contrast, a majority of respondents
reported that capital equipment spending in the first quarter
was below year-earlier levels (index value of 90). However,

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 R. 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

Table 1

Table 2

Income and Expenditures, Land Values, and Cash Rents

Expected and Actual 2014:Q1 Variables
(versus year-ago levels)

Income and expenditures (versus year-ago levels)
Farm income
2014:Q1 (actual)
2014:Q2 (expected)
Household spending
2014:Q1 (actual)
2014:Q2 (expected)
Capital spending
2014:Q1 (actual)
2014:Q2 (expected)

91
80
102
93
90
73

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

$5,496
89
$2,499
100

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

$182
102
$62
108

NOTE: 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
2014. 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.
The results reported in these tables refer to the entire Eighth Federal
Reserve District.

despite lower capital spending the actual level did surpass
their prior expectation (index value of 78) reported last
quarter. Consistent with their more cautious view of farm
income, bankers expect that household and capital equipment expenditures in the second quarter of 2014 will follow
the trend and decline from year-earlier levels.

Current and Expected Land Values and Cash Rents
Table 1 also reports values for farmland and cash rents.
Our survey found that quality farmland values across the

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

76
91
15
88
102
15
78
90
12
114
122
8
108
118
9
100
111
11

NOTE: All variables are reported using a diffusion index. See the note
below Table 1 for details about interpreting diffusion indexes. Components may not sum to totals due to rounding.

District averaged $5,496 per acre in the first quarter of
2014. The first-quarter average was modestly lower than the
fourth-quarter average of $5,868 per acre (see Figure 1).3
Yet when measured from a year earlier, the value of quality
farmland in the Eighth District increased by 7.5 percent.
The value of Eighth District ranchland or pastureland
averaged $2,499 per acre in the first quarter of 2014, essentially unchanged from last quarter. Compared with a year
earlier, the value of ranchland or pastureland increased 9.9
percent. Cash rents for quality farmland across the District
averaged $182 per acre in the first quarter, down 4 percent
from the fourth quarter. Cash rents for ranchland or pastureland also fell slightly in the first quarter ($62 per acre)
compared with their fourth-quarter average ($65 per acre).
For the third consecutive survey, proportionately more
bankers expect quality farmland values to decline over the
next three months relative to a year earlier (an index value

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
$4,000

$150

$3,000

$100

$2,000

$50

$1,000
$0

$0
2012:Q2 2012:Q3 2012:Q4 2013:Q1 2013:Q2 2013:Q3 2013:Q4 2014:Q1

Quality Farmland

2012:Q2 2012:Q3 2012:Q4 2013:Q1 2013:Q2 2013:Q3 2013:Q4 2014:Q1

Ranchland or Pastureland

Quality Farmland

Table 3

Table 4

Lending Conditions

Interest Rates

Loans (versus year-ago levels)
Demand for loans
2014:Q1 (actual)
2014:Q2 (expected)
Availability of funds
2014:Q1 (actual)
2014:Q2 (expected)
Rate of loan repayment
2014:Q1 (actual)
2014:Q2 (expected)

122
107
118
112
111
100

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

Interest rates (%)
Operating
Fixed
Variable
Machinery/
intermediate-term
Fixed
Variable
Farm real estate
Fixed
Variable

Ranchland or Pastureland

2014:Q1

2013:Q4

Change

5.28
4.84

5.39
5.01

–0.12
–0.17

5.53
5.02

5.65
5.21

–0.12
–0.19

5.20
4.77

5.23
4.93

–0.03
–0.16

of 89). In contrast, bankers are evenly split on the future
value of ranchland or pastureland (an index value of 100)
while expectations for cash rents for quality farmland reflect
a slight upward bias (index value of 102). Respondents
have a slightly stronger expectation of upward movement
of average cash rents for ranchland or pastureland over the
next three months, relative to a year earlier (index value
of 108). Figures 1 and 2 show farmland values and average
cash rents since the inception of the Agricultural Finance
Monitor (second quarter of 2012).

earlier: Respondent reports on actual farm income, household spending, and capital spending all came in stronger
than expectations. In terms of financial variables, the
demand for loans and the supply of funds to extend loans
were modestly higher than respondents expected. In addition, loan repayments in the first quarter proceeded at a
modestly faster pace than bankers expected three months
ago. Figures 3 through 8 plot the actual and expected values for the six variables shown in Table 2 since the second
quarter of 2012.

Outcomes Relative to Previous-Quarter Expectations

Financial Conditions

Table 2 provides an assessment of farm income, expenditures, and several other key variables in the first quarter
of 2014 relative to bankers’ expectations from three months

Table 3 reports our survey respondents’ assessment of
key commercial lending indicators for the farm sector in
the Eighth District. Our survey showed that the demand

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 4

Figure 3

Figure 4

Farm Income: Expected and Actual Values

Household Spending: Expected and Actual Values

Diffusion Index, versus Year-Ago Levels

Diffusion Index, versus Year-Ago Levels

130

130

120

120

110

110

100

100

90

90

80

80

70

70
60

60
2012:Q3 2012:Q4 2013:Q1 2013:Q2 2013:Q3 2013:Q4 2014:Q1 2014:Q2

Actual

2012:Q3 2012:Q4 2013:Q1 2013:Q2 2013:Q3 2013:Q4 2014:Q1 2014:Q2

Actual

Expected

Figure 5
Capital Spending: Expected and Actual Values

Figure 6

Diffusion Index, versus Year-Ago Levels

Diffusion Index, versus Year-Ago Levels

130

140

120

130

110

120

100

Expected

Demand for Loans: Expected and Actual Values

110

90
100

80

90

70
60

80
2012:Q3 2012:Q4 2013:Q1 2013:Q2 2013:Q3 2013:Q4 2014:Q1 2014:Q2

Actual

2012:Q3 2012:Q4 2013:Q1 2013:Q2 2013:Q3 2013:Q4 2014:Q1 2014:Q2

Expected

Figure 7
Availability of Funds: Expected and Actual Values

Actual

Figure 8
Rate of Loan Repayment: Expected and Actual Values

Diffusion Index, versus Year-Ago Levels

Diffusion Index, versus Year-Ago Levels

160
150
140
130
120
110
100
90
80
70
60

120
115
110
105
100
95
90
85
80
2012:Q3 2012:Q4 2013:Q1 2013:Q2 2013:Q3 2013:Q4 2014:Q1 2014:Q2

Actual

Expected

Expected

2012:Q3 2012:Q4 2013:Q1 2013:Q2 2013:Q3 2013:Q4 2014:Q1 2014:Q2

Actual

Expected

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 5

for farm loans in the first quarter of 2014 was notably higher
than a year ago (index value of 122). Further, on balance,
more respondents expect that higher demand for farm
loans will continue in the second quarter of 2014 compared
with a year earlier (index value of 107). Survey respondents reported that more funds were available to prospective borrowers in the first quarter than at the same time
last year (index value of 118) and that adequate funds are
also expected to be available in the second quarter of 2014.
District loan repayment rates in the first quarter were above
year-earlier levels (index value of 111), but repayment rates
are expected to return to year-earlier levels in the second
quarter of 2014 (index value of 100).
Table 4 reports average interest rates on fixed- and
variable-rate loan products across the District. During
the first quarter of 2014, interest rates on fixed-rate loans
declined modestly from their fourth-quarter averages
across two of three major loan types. The yield on farm
real estate fixed-rate loans was reported firmest across both
fixed and variable loan types. Interest rates on variable-rate
loans experienced the highest decline from three months
earlier when compared with the change in yield across all
three loan categories.

Special Question
We asked our agricultural bankers one additional question in this quarter’s survey. This is reported in Table 5.
The question pertains to the change in lending competition
relative to the expectation of lower farm sector income in
2014. Three of four bankers believe that the lower farmsector income expectation has had no change on lending
competition. On the other hand, 16 percent responded that
competition has indeed increased, while just 9 percent have
affirmed some easing of lending competition. Overall,
slightly better than 90 percent of responses indicate that,
despite lower farm income expectations, lending competition remains as strong as or stronger in some markets
than in previous periods. ■

Table 5
Special Question
In your primary market(s), has agricultural
lending competition changed with the
expectation of lower farm income?

% of
responses

No change
Competition has decreased
Competition has increased
Other

75
9
16
0

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 have
eliminated the zone-by-zone responses until the response rate improves.

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 (fourth quarter of 2013). Such
an exercise reveals that the average land price of quality farmland in the District
was $5,829 per acre in the first quarter of 2014, which is a 1.9 percent decrease
from the $5,943 per acre average reported in the fourth quarter of 2013.

IL
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 SSIS
MIS
S SS
SIP
S
IP
PPI
P
PI

Posted on May 15, 2014
Views expressed do not necessarily reflect official positions of the Federal Reserve System.

research.stlouisfed.org