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

The tenth quarterly survey of agricultural credit conditions was conducted by the Federal Reserve Bank of
St. Louis from September 15, 2014, through September 30,
2014. The results presented here are based on the responses
from 41 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. 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
According to a survey of 41 agricultural banks in the
Eighth District, farm household spending and capital equipment expenditures declined in the third quarter relative to
the same period a year earlier. Proportionately more bankers
reported lower farm income for the third quarter than was
expected three months earlier. Bankers expect further
declines in farm income, household expenditures, and capital expenditures in the fourth quarter. Respondents reported
that farmland values rose sharply in the third quarter. Our
survey found that quality farmland values in the Eighth
District averaged a little more than $6,100 per acre in the
third quarter, which is the highest value the Agricultural
Finance Monitor has reported. A larger percentage of bankers
expect quality farmland prices in the fourth quarter to be
lower than they were in the fourth quarter last year. Agricultural loan demand in the third quarter was consistent
with the expectations of bankers from three months earlier,
and the average interest rate on most fixed- and variablerate loan products declined or was unchanged from three
months earlier. For this survey, we asked three special questions to assess the financial health of agricultural borrowers
in our bankers’ loan portfolios. The results suggest that the
average agricultural borrowers’ financial condition has not
deteriorated over the past three years.

Selected Quotes from Banker Respondents
Across the Eighth Federal Reserve District
“The dramatic drop in grain prices will put many producers in a cash
flow crunch. Highly leveraged operators will be facing negative cash
flow from grain. Livestock has very good margins.” (Illinois)
“As we have been expecting, the low commodity prices are quickly
affecting both actual borrower numbers as well as borrower sentiment in a negative way. I feel it will really begin to show up late next
year. The one bright spot is cattle. Fortunately, we have a good mix
of borrowers that are involved with livestock production in some
form or another.” (Missouri)
“Prices for all commodities grown in our region have declined to
near-production-cost levels. Capital spending has sharply declined
to near zero. Many customers will face crop loan carryovers this year.
Loan underwriting will be much more difficult in 2015.” (Arkansas)
“With the price of corn falling to about $2.60 and soybeans falling
below $9.00, I do not know how young farmers with no equity built up
will pay their cash rent or the payment on equipment and land purchased. This is a critical time for the farming community.” (Missouri)
“Heavy flooding in eastern Arkansas has resulted in decreased earnings and late replants; however, few farm failures are anticipated as
a result. Land prices continue to moderately rise with a foreseeable
bubble in valuations on the horizon.” (Arkansas)
NOTE: These are generally verbatim quotes, but some were lightly edited
to improve readability.

Survey Results
Farm Income and Expenditures
Respondents reported that third-quarter farm income
declined compared with the same period a year earlier—
to a substantially larger degree than in our second-quarter
survey. The third-quarter index value (76) was at its lowest
level since we began publishing Agricultural Finance Monitor
survey results (second quarter of 2012). Readers are cautioned that farm income is highly volatile and subject to
seasonal patterns that occur in the agricultural sector.

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:Q3 Variables
(versus year-ago levels)

Income and expenditures (versus year-ago levels)
Farm income
2014:Q3 (actual)
2014:Q4 (expected)
Household spending
2014:Q3 (actual)
2014:Q4 (expected)
Capital spending
2014:Q3 (actual)
2014:Q4 (expected)

76
41
91
62
55
41

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

$6,120
57
$2,570
93

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

$194
46
$63
100

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 third 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.

Actual and expected farm income is a key determinant
of household expenditures and capital spending by farmers
and ranchers. Thus, not surprisingly, survey respondents
reported that farm household spending and capital equipment expenditures declined in the third quarter relative to
the same period a year earlier. The survey suggests that the
pull-back in capital spending was more widespread than
the decline in farm household expenditures. Respondents
expect further declines in all three categories in the fourth
quarter.

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

80
76
–4
87
91
4
73
55
–18
103
103
0
114
111
–3
103
89
–14

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.

Current and Expected Land Values and Cash Rents
Land values and cash rents are reported in Table 1.
According to our agricultural banker respondents, quality
farmland values across the District averaged $6,120 per acre
in the third quarter of 2014. This is the highest reported
value in our survey’s relatively short history. The thirdquarter average was up 11.8 percent from the secondquarter average of $5,473 per acre (see Figure 1).3 In our
second-quarter survey, a slight majority of bankers expected quality farmland values to decline in the third quarter.
Compared with the third quarter of 2013, quality farmland
values in the Eighth District increased by 14.8 percent. Land
values and cash rents are reported in current dollars.
The value of Eighth District ranchland or pastureland
averaged $2,570 per acre in the third quarter of 2014, an
11.1 percent increase from the previous quarter and also

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

$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 2014:Q2 2014:Q3

Quality Farmland

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

Ranchland or Pastureland

Quality Farmland

Table 3

Table 4

Lending Conditions

Interest Rates

Loans (versus year-ago levels)
Demand for loans
2014:Q3 (actual)
2014:Q4 (expected)
Availability of funds
2014:Q3 (actual)
2014:Q4 (expected)
Rate of loan repayment
2014:Q3 (actual)
2014:Q4 (expected)

103
106
111
94
89
83

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.

the highest reported value in the survey’s history. Compared
with a year earlier, the value of ranchland or pastureland
increased by 8.1 percent in the third quarter. Cash rents for
quality farmland across the District averaged $194 per acre
in the third quarter, up 1.6 percent from the second quarter.
Cash rents for ranchland or pastureland rose an even larger
6.8 percent in the third quarter to $63 per acre.
Despite the surge in farmland prices in the third quarter,
respondents expect farmland values to soften in the fourth
quarter relative to a year earlier (an index value of 57). In
fact, expectations of a softening in quality farmland prices
have been prevalent over the past year. A substantially
smaller proportion of respondents expect values of ranchland or pastureland to decline in the fourth quarter relative
to a year earlier (index value of 93). Since cash rents adjust
to the income produced by land—perhaps with a lag—

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

Ranchland or Pastureland

2014:Q3

2014:Q2

Change

5.24
4.89

5.37
4.94

–0.13
–0.06

5.52
5.00

5.58
5.15

–0.05
–0.16

5.14
4.83

5.18
4.82

–0.03
0.01

expectations for cash rents for quality farmland and ranchland or pastureland over the next three months were very
similar to land values: Proportionately more respondents
expect cash rents for quality farmland values to decline in
the fourth quarter relative to a year earlier (index value of
46). Figures 1 and 2 show average farmland values and
cash rents since our first survey.

Outcomes Relative to Previous-Quarter Expectations
The examination of actual data relative to expectations
is an important aspect of economic analysis. Accordingly,
Table 2 provides an assessment of farm income, expenditures, and several other key variables reported in the third
quarter of 2014 relative to bankers’ expectations from three
months earlier.4 Farm income and capital spending in the

Agricultural FINANCE Monitor

Figure 3
Farm Income: Expected and Actual Values

Federal Reserve Bank of St. Louis 4

Figure 4
Household Spending: Expected and Actual Values

Diffusion Index, versus Year-Ago Levels

130
120
110
100
90
80
70
60
50
40

130
120
110
100
90
80
70
60
2012:Q3 2012:Q4 2013:Q1 2013:Q2 2013:Q3 2013:Q4 2014:Q1 2014:Q2 2014:Q3 2014:Q4

Actual

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

Actual

Expected

Figure 5

Expected

Capital Spending: Expected and Actual Values

Figure 6
Demand for Loans: Expected and Actual Values

Diffusion Index, versus Year-Ago Levels

130
120
110
100
90
80
70
60
50
40

140
130
120
110
100
90
80
2012:Q3 2012:Q4 2013:Q1 2013:Q2 2013:Q3 2013:Q4 2014:Q1 2014:Q2 2014:Q3 2014:Q4

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

Actual

Expected

Figure 7
Availability of Funds: Expected and Actual Values

Expected

Figure 8
Rate of Loan Repayment: Expected and Actual Values

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 2014:Q3 2014:Q4

Actual

Expected

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

Actual

Expected

Agricultural FINANCE Monitor
third quarter was lower than initially expected in the previous survey. However, farm household spending in the
third quarter was slightly higher than expected.
Table 2 indicates that loan demand in the third quarter
was consistent with the expectations of bankers from three
months earlier (index value of 103). However, the availability of funds in the third quarter was slightly below expectations from three months earlier. A modestly larger share of
bankers reported that loan repayments fell short of previous
expectations (an index value of 89 relative to an expected
index value of 103). Figures 3 through 8 plot the actual and
expected diffusion index values for the six variables shown
in Table 2 since our first survey.

Financial Conditions
Table 3 reports our survey respondents’ assessment of
current and prospective commercial lending indicators in
the Eighth District. In the third quarter, a slightly larger
proportion of bankers reported an increase in loan demand
relative to the same period a year ago (index value of 103).
The proportion of bankers expecting loan demand to
increase over the next three months relative to a year ago
increased slightly (index value of 106). By contrast, a larger
number of bankers expect that the availability of funds and
loan repayment rates will fall in the fourth quarter relative
to a year ago.
Table 4 indicates that average interest rates on fixedand variable-rate loan products in the third quarter of
2014 were modestly below their second-quarter averages.
The largest declines were in fixed-rate loans for operating
expenses (–13 basis points) and variable-rate loans for
machinery/intermediate-term loan types (–16 basis points).
The average interest rate on farm real estate loans in the
third quarter was little changed from the previous quarter.

Special Questions
Table 5 reports the results of three special questions
we posed to our bank respondents for this survey. Taken
together, the questions attempt to assess the current financial condition of our bankers’ agricultural borrowers. In
the first question, we asked bankers to assess the change
in loan-to-value ratios (LTVs) over the past three years for
agricultural production/operating loans and for land purchase loans. Regarding the former, roughly two-thirds of
respondents indicated no change in LTVs over the past
three years. Of those bankers reporting a change, a slightly
larger percentage noted an increase in LTVs relative to a
decrease in LTVs.

Federal Reserve Bank of St. Louis 5

Table 5
Special Question
How have your loan-to-value ratios changed
over the past three years?
Agricultural production/operating loans
Increased
Remained stable
Declined
Land purchase loans
Increased
Remained stable
Declined

17.6
67.6
14.7
24.2
57.6
18.2

What is the range of debt-to-equity ratios for
agricultural borrowers in your loan portfolio?
20 to 75 percent*

How has the range of debt-to-equity ratios for
agricultural borrowers in your loan portfolio
changed over the past three years?
Increased
Remained stable
Declined

17.6
44.1
38.2

NOTE: Values may not add up to 100 due to rounding.
*Range created from median of responses.

The second special question asked agricultural bankers
to assess the debt-to-equity ratios (DERs) for agricultural
borrowers in their loan portfolio. The results varied tremendously, and the median responses ranged from a low of 20
percent to a high of 75 percent. Finally, the third question
asked bankers to assess how their agricultural borrowers’
DERs have changed over the past three years. A significant
minority of respondents (44.1 percent) reported that DERs
have remained stable, while a substantially smaller percentage (17.6 percent) reported that their borrowers’ DERs
have increased. The remaining 38.2 percent of respondents
reported that their borrowers’ DERs have decreased over
the past three years. Overall, these results suggest that the
average agricultural borrowers’ financial condition has not
deteriorated over the past three years. ■

Agricultural FINANCE Monitor

Federal Reserve Bank of St. Louis 6

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 are
eliminating the zone-by-zone responses until the response rate improves.
3 Since the composition and number of survey respondents tend 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 (second quarter of 2014).
Such an exercise reveals that the average value of quality farmland in the District
was $6,112 per acre in the third quarter of 2014, which is a 0.4 percent increase
from the $6,086 per acre average reported in the second quarter of 2014.
4

See http://research.stlouisfed.org/publications/afm/2014/afmq2.pdf.

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
MI
S SS
SIP
S
IP
PP
P
PI

Posted on November 14, 2014
Views expressed do not necessarily reflect official positions of the Federal Reserve System.

research.stlouisfed.org

Full text of Agricultural Finance Monitor : 2014 Third Quarter

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