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2015 n Fourth Quarter

AGRICULTURAL Finance Monitor

Selected Quotes from
Banker Respondents Across the
Eighth Federal Reserve District
“Cattle prices have declined which affects
overall income. Poultry house construction continues to drive loan demand.”
(Arkansas)
“Crop and cattle prices are down, but
input costs are rising at a slower pace.
I expect capital expenditures to decrease
along with a devaluation in farm real
estate.” (Kentucky)
NOTE: These are generally verbatim quotes, but
some were lightly edited to improve readability.

he fifteenth quarterly survey of agricultural credit conditions was conducted by the Federal Reserve Bank of St. Louis from December 15, 2015,
through December 31, 2015. The results presented here are based on
the responses from 33 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. 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 the latest survey of agricultural bankers in the Eighth Federal
Reserve District, farm income continued to weaken in the fourth quarter of
2015 compared with the same period a year earlier. Proportionately more
bankers expect further declines in farm income in the first quarter of 2016
relative to a year earlier. Similar to our previous survey, large majorities of
bankers reported that household spending and farm expenditures on capital
goods continued to decline in the fourth quarter and will likely continue to
do so in the first quarter of 2016. Eighth District land values declined in the
fourth quarter from a year earlier. Quality farmland values declined for the
third quarter in the past four quarters, while ranchland or pastureland values
declined for the second quarter in the past four quarters. Cash rents were
mixed in the fourth quarter, as rents rose sharply for ranchland or pastureland but declined sharply for quality farmland. Bankers expect land values
and cash rents for quality farmland and ranchland or pastureland to decline
in the next three months compared with a year earlier. Slightly more bankers
expect that the availability of funds in the first quarter of 2016 will be less
than it was a year earlier and also that the rate of loan repayment is likely to
be worse. On net, interest rates on most fixed- and variable-rate loan products
were little changed in the fourth quarter of 2015 compared with the previous
quarter. Our special questions focused on expected farmland returns in 2016
and recent and prospective farmland sales in 2015. The results of the survey
indicate that 9 in 10 bankers expect farmland returns in 2016 to be positive,
but less than 10 percent. Although nearly half of bankers surveyed expect no
change in the volume of farmland sales in their area in 2016, slightly more
farmers believe that sales volumes will increase rather than decrease.

Survey Results
Farm Income and Expenditures
For the tenth quarter in the past 11, a larger percentage of bankers reported
that farm income had decreased rather than increased. In the fourth quarter
of 2015, the index of farm income was 28, indicating a sizable difference
between those reporting increases in farm incomes and those reporting
decreases in farm incomes from a year earlier (see Table 1). Moreover, as seen
in Figure 3, the index value was down sharply from the previous quarter’s
value of 55 and the smallest in the survey’s relatively short history. Looking
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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 fourth quarter of 2015. 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.

Table 1

Table 2

Income and Expenditures (versus year-ago levels)

Land Values and Cash Rents (year/year change)

Index value
Farm income
2015:Q4 (actual)
2016:Q1 (expected)

28
22

Household spending
2015:Q4 (actual)
2016:Q1 (expected)

72
59

Capital spending
2015:Q4 (actual)
2016:Q1 (expected)

38
28

NOTE: Actual and expected values for the indexes use all responses from
the 2015:Q4 survey.

ahead, proportionately more bankers expect that farm
income in the first quarter of 2016 will remain below yearearlier levels (index value of 22).
As reported in Table 1, the index of household spending
(72) and capital equipment expenditures (38) in the fourth
quarter of 2015 were significantly below 100. This indicates that, in the midst of the ongoing downturn in farm
incomes, farmers and ranchers have continued to reduce
household expenditures and capital spending from yearearlier levels. As with the index for farm income, Figures 4
and 5 show that the indexes of household spending and
farm capital expenditures in the fourth quarter were at their
lowest levels since our survey began. Agricultural bankers
expect that farm income and capital expenditures in the
first quarter of 2016 will also decline from year-earlier levels
(see Table 1). Readers are cautioned that farm income is
highly volatile and subject to seasonal patterns that occur
in the agricultural sector.
Current and Expected Land Values and Cash Rents
In the fourth quarter of 2015, quality farmland values
continued to decline from year-earlier levels. Although the

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

–2.5%
43
–5.3%
67

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

–9.5%
52
8.6%
58

NOTE: Changes in land values and cash rents are calculated using a
common sample of respondents for the most recent survey as well as
the survey conducted a year ago. Expected trends of land values and
cash rents are calculated using all responses from the 2015:Q4 survey.
Expected trends are presented as a diffusion index; see note above for
details about interpreting diffusion indexes.

fourth-quarter decline (2.5 percent) was about equal to the
previous quarter’s decline, it was the third decline in the
past four quarters. One notable development in this quarter’s survey concerned ranchland or pastureland values.
After increasing in the second and third quarters of 2015,
ranchland or pastureland values fell by 5.3 percent from
year-earlier levels in the fourth quarter. This was the largest
decline since the second quarter of 2014. Proportionately
more bankers expect both quality farmland and ranchland
or pastureland land values to decline in the first quarter of
2016 compared with a year ago. In fact, a slightly larger percentage of bankers expect quality farmland values to decline
(index value of 43) in the first quarter of 2016 than those
who expect ranchland or pastureland values to decline
(index value of 67). The four-quarter percentage changes
in Eighth District land values and cash rents are reported
in Table 2 and the history is shown in Figures 1 and 2.3

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Figure 1
Year-Over-Year Change in Average Eighth District Land Values
Percent Change
14
12
10
8
6
4
2
0
–2
–4
–6
–8

Quality Farmland
Ranchland or Pastureland

2013:Q4

2014:Q1

2014:Q2

2014:Q3

2014:Q4

2015:Q1

2015:Q2

2015:Q3

2015:Q4

NOTE: Percent changes are calculated using responses only from those banks reporting in both the past and the
current quarters.

Figure 2
Year-Over-Year Change in Average Eighth District Cash Rents
Percent Change
15

Quality Farmland
Ranchland or Pastureland

10
5
0
–5
–10
–15
2013:Q4

2014:Q1

2014:Q2

2014:Q3

2014:Q4

2015:Q1

2015:Q2

2015:Q3

2015:Q4

NOTE: Percent changes are calculated using responses only from those banks reporting in both the past and the
current quarters.

Cash rents for quality farmland fell by 9.5 percent in
the fourth quarter of 2015 compared with a year earlier;
this decline was the largest in the relatively short history
of the survey. By contrast, cash rents for ranchland or pastureland rose by 8.6 percent in the fourth quarter after
increasing by 2.5 percent in the third quarter. Bankers
expect that cash rents for both quality farmland and ranchland or pastureland will decline in the first quarter of 2016,
as indicated by their index values of 52 and 58, respectively.
Figure 2 shows the year-to-year percentage changes in cash
rents since the fourth quarter of 2013.

Outcomes Relative to Previous-Quarter Expectations
Table 3 reports farm income, farm household expenditures, and several other key variables in the fourth quarter
relative to the expectations of agricultural bankers from the
survey taken three months earlier (third quarter of 2015).
In general, the results were mixed. For example, a smaller
percentage of bankers had expected farm income to decline
in the fourth quarter relative to previous expectations (an
expected index value of 17 versus an actual value of 30).
However, slightly more bankers reported that household
spending declined, but the actual and expected index value

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Table 3

Table 4

2015:Q4 Variables (versus year-ago levels)

Lending Conditions (versus year-ago levels)

Index value
Farm income
Expected
Actual
Difference

17
30
13

Household spending
Expected
Actual
Difference

65
61
–4

Capital spending
Expected
Actual
Difference

26
26
0

Demand for loans
Expected
Actual
Difference

104
100
–4

Availability of funds
Expected
Actual
Difference

105
109
5

Rate of loan repayment
Expected
Actual
Difference

74
78
4

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 questions in both the past and the
current quarters. Components may not sum to totals due to rounding.

for capital spending was the same. The demand for loans
was slightly less than bankers had expected, but the availability of funds in the fourth quarter slightly exceeded the
expectations of bankers from the previous survey. Figures
6 through 8 show the indexes of actual and expected loan
demand, availability of funds, and loan repayment rates
since the first quarter of 2013.
Financial Conditions
Table 4 reports our survey respondents’ assessment of
current and prospective bank lending conditions in the
Eighth District in the fourth quarter of 2015 and the first
quarter of 2016, respectively. [NOTE: Each assessment is

Index value
Demand for loans
2015:Q4 (actual)
2016:Q1 (expected)

113
121

Availability of funds
2015:Q4 (actual)
2016:Q1 (expected)

103
96

Rate of loan repayment
2015:Q4 (actual)
2016:Q1 (expected)

78
64

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. Actual and expected
values for indices use all responses from the 2015:Q4 survey.

relative to a year earlier.] As noted in previous surveys,
the actual index values reported in Table 4 may differ
from those reported in Table 3 because Table 4 uses all
responses to the 2015:Q4 survey, instead of a common
sample between the current and previous surveys. The
results from Table 4 suggest that a modestly larger percentage of bankers expect an increase in loan demand in
the first quarter of 2016 than in the previous quarter (index
value of 121 versus 113). Similar to the previous survey,
slightly more bankers expect the availability of funds in
the first quarter to be less than a year earlier, while the
reverse occurred in the fourth quarter of 2015. Bankers
reported that the rate of loan repayment is likely to be
worse in the first quarter of 2016 compared with the previous quarter (index value of 64 versus 78).
Table 5 presents average interest rates on fixed- and
variable-rate loan products in the third and fourth quarters
of 2015. In general, interest rates across the three fixedand variable-rate loan categories were little changed during
the fourth quarter (compared with the previous quarter).
The two notable exceptions were fixed-rate loans to purchase machinery or other intermediate-term loans, which
rose by 13 basis points, and fixed-rate loans secured by
real estate, which fell by 6 basis points.
Special Questions
Table 6 reports the results of three special questions
about farmland returns and farmland sales we posed to
our bankers for this survey. The first question asked about

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NOTE: All variables in Figures 3 through 8 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 questions in both the past and the current quarters. Expected
values for indices in 2016:Q1 are calculated using only the responses from the 2015:Q4 survey.

Figure 3
Farm Income: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
120
100
80
60
40
20
Actual
0

2013
Q1

2013
Q2

Expected
2013
Q3

2013
Q4

2014
Q1

2014
Q2

2014
Q3

2015
Q1

2015
Q2

2015
Q3

2015
Q4

2016
Q1

2014
Q4

2015
Q1

2015
Q2

2015
Q3

2015
Q4

2016
Q1

2014
Q4

2015
Q1

2015
Q2

2015
Q3

2015
Q4

2016
Q1

2014
Q4

Figure 4
Household Spending: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
130
120
110
100
90
80
70
60
Actual
50

2013
Q1

2013
Q2

Expected
2013
Q3

2013
Q4

2014
Q1

2014
Q2

2014
Q3

Figure 5
Capital Spending: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
130
110
90
70
50
30
10
Actual
–10

2013
Q1

2013
Q2

Expected
2013
Q3

2013
Q4

2014
Q1

2014
Q2

2014
Q3

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Figure 6
Demand for Loans: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
140
130
120
110
100
90
80
Actual
70

2013
Q1

2013
Q2

2013
Q3

2013
Q4

2014
Q1

2014
Q2

2014
Q3

2014
Q4

2015
Q1

2015
Q3

2015
Q2

Expected
2015
Q4

2016
Q1

Figure 7
Availability of Funds: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
140

Actual

Expected

135
130
125
120
115
110
105
100
95
90

2013
Q1

2013
Q2

2013
Q3

2013
Q4

2014
Q1

2014
Q2

2014
Q3

2014
Q4

2015
Q1

2015
Q2

2015
Q3

2015
Q4

2016
Q1

Figure 8
Rate of Loan Repayment: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
120
Actual

Expected

110
100
90
80
70
60

2013
Q1

2013
Q2

2013
Q3

2013
Q4

2014
Q1

2014
Q2

2014
Q3

2014
Q4

2015
Q1

2015
Q2

2015
Q3

2015
Q4

2016
Q1

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Table 5

Table 6

Interest Rates (%)

Special Questions

Operating
Fixed
Variable

2015:Q4

2015:Q3

Change

5.37
5.08

5.39
5.07

–0.02
0.01

Machinery/
intermediate-term
Fixed
Variable

5.62
5.24

5.49
5.22

0.13
0.02

Farm real estate
Fixed
Variable

5.12
4.93

5.18
4.97

–0.06
–0.03

Do you expect the return on farmland in your area for landowners in 2016 (rents less expenses divided by market value
of land) will be:
Share of total respondents
Greater than 10%
Greater than 5% but less than 10%
Greater than 0% but less than 5%
Negative (less than 0%)

0
13
77
10

Compared with 2015, the volume of farmland sales in your
area in 2016 will be:

NOTE: For comparison purposes, we calculate interest rates in both
periods using a common sample of banks that responded to the given
questions in both the past and the current quarters. Components may
not sum to totals due to rounding.

returns to owners of farmland in the banker’s area in 2016.
Farmland returns are defined as rents less expenses divided
by the market value of the land. Although farmland returns
are thus dependent on many factors, a little more than
three-quarters (77 percent) of bankers reported that they
expect returns in 2016 to be positive, but less than 5 percent. Thirteen percent expect returns greater than 5 percent
but less than 10 percent, while 10 percent expect farmland
returns to be negative in 2016.
The second question asked bankers about their expectation for the volume of land sales in 2016 relative to 2015.
A little less than half of respondents (47 percent) expected
no change, but a little less than a third (31 percent) expected
an increase in the volume of land sales. A little less than a
quarter of bankers (22 percent) expect to see a lower volume of land sales. The third question asked agricultural
bankers to assess what percentage of the farmland sold in
2015 was purchased by farmers. A clear majority (72 percent) reported that more than half of the farmland sold in
their area was purchased by farmers. n

Share of total respondents
Higher
No change
Lower

31
47
22

Of the farmland sold in your area in 2015, approximately
what percent was purchased by farmers?
Share of total respondents
Less than 50%
Greater than 50%

28
72

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. As of
September 30, 2015, there were 247 banks in the Eighth Federal Reserve
District that met this criteria.
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 The annual percentage changes in land values and cash rents are based on
common responses. That is, a respondent must have been in both the
2015:Q4 and 2014:Q4 samples.

The survey is produced by staff at the Federal Reserve Bank of St. Louis: Larry D. Sherrer, Senior Examiner, Banking Supervision and Regulation Division;
Usa Kerdnunvong, 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.
Posted on February 11, 2016
© 2016, Federal Reserve Bank of St. Louis. Views expressed do not necessarily reflect official positions of the Federal Reserve System.

ILLINOIS

INDIANA

Columbia
Jefferson City

St. Louis
Evansville

MISSOURI

Owensboro

Louisville-Jefferson County
Elizabethtown

KENTUCKY

Springfield
Bowling Green

Fayetteville-Springdale-Rogers
Jonesboro
Fort Smith

Jackson

ARKANSAS

Memphis

Little Rock-North Little Rock
Hot Springs
Pine Bluff

Texarkana

MISSISSIPPI

TENNESSEE