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2015 n Third Quarter

AGRICULTURAL Finance Monitor

Selected Quotes from
Banker Respondents Across the
Eighth Federal Reserve District
“The 2014 Farm Bill will not sufficiently provide a safety net for our customers. Young
farmers will not pursue agriculture production
due to weak earnings and high risk; older
farmers are retiring for the same reasons.”
(Arkansas)
“We are experiencing expansion from all
poultry integrators, so loan demand is firm
and the contracts offer increased income.”
(Arkansas)
“While I am optimistic toward agriculture, it
could be argued that commodities in general
are on the down slide as this commodity super
cycle winds down. This will mean more pressure on profit margins, especially for grain
farmers. I am optimistic because I do not think
this downturn will be as severe as the 1980s.
Many agricultural producers have increased
their net worth and follow good business practices, so they could continue for quite some
time with tight margins.” (Illinois)
“In the short term, farmers’ income in our area
is reliant on crop insurance because many did
not plant soybeans due to the wet weather.
The corn that was planted has a lot of places
where it drowned out. Those who are fortunate
enough to have livestock are relying on that
income to get through the year.” (Missouri)
“Harvest is progressing quickly in our area, but
corn yields are expected to be below average
overall. Almost 40 percent of the intended soybean acreage was not planted. Yields of earlyplanted soybeans are expected to be average
at best, with yields of later-planted soybeans
expected to be below average due to a very
dry period during the pod-filling stage. The
lower projected farm incomes will likely reduce
loan demand for capital expenditures for both
machinery and farmland.” (Missouri)
“The future prospects for the agricultural
sector are bright because of an increasing
world population.” (Tennessee)
NOTE: These are generally verbatim quotes, but
some were lightly edited to improve readability.

T

he fourteenth quarterly survey of agricultural credit conditions was
conducted by the Federal Reserve Bank of St. Louis from September 15,
2015, through September 30, 2015. The results presented here are based
on the responses from 38 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
Farm income in the third quarter weakened measurably from a year earlier
according to the latest survey of agricultural bankers in the Eighth Federal
Reserve District. Bankers expect further declines in the fourth quarter. Household spending and farm expenditures on capital goods also continued to
decline in the third quarter. Land valuations were reported to be mixed in
the third quarter. Compared with a year earlier, quality farmland values
declined by 2.6 percent, but values for ranch or pastureland rose 4.7 percent
in the third quarter. Cash rents for both quality farmland and ranch or pastureland rose modestly in the third quarter. 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. Lending conditions
exhibited few stresses in the third quarter, although loan demand and availability of funds were modestly lower than bankers had expected three months
earlier. Interest rates, both variable and fixed, rose slightly across most loan
products, with fixed-rate loan products generally rising more than variablerate products. According to a special question in the survey, most agricultural
bankers perceive a weaker-than-expected fall harvest and an unexpected
sharp decline in livestock prices as the largest potential risks to farmers in
their area. A second special question asked bankers their view of the farm
sector’s prospects over the next 5 to 10 years. About half were optimistic,
while only about 15 percent were pessimistic.

Survey Results
Farm Income and Expenditures
Table 1 shows that a much larger percentage of bankers reported that
farm income declined in the third quarter of 2015 compared with the same
period a year earlier (index value of 61). As seen in Figure 3, though, the diffusion index of banker respondents was modestly higher in the third quarter
than in the second quarter. This effectively means that a somewhat larger percentage of bankers reported higher farm income in the third quarter compared with the previous quarter. Because of some concern about the fall harvest and the recent dip in livestock prices, agricultural bankers have a rather
dour view of farm income prospects in the fourth quarter of 2015 (index
value of 23).

Federal Reserve Bank of St. Louis | research.stlouisfed.org

AGRICULTURAL Finance Monitor

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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 third 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:Q3 (actual)
2015:Q4 (expected)

61
23

Household spending
2015:Q3 (actual)
2015:Q4 (expected)

73
61

Capital spending
2015:Q3 (actual)
2015:Q4 (expected)

48
29

NOTE: Actual and expected values for the indexes use all responses from
the 2015:Q3 survey.

Along with the expectation of lower farm income,
farmers and ranchers continued to scale back household
expenditures and capital spending. As seen in Table 1, the
index of household spending (73) and capital equipment
expenditures (48) suggests a strong consensus among
bankers that the two measures fell relative to the same time
last year. In fact, Figures 4 and 5 show that the indexes fell
to their lowest levels since our survey began. Table 1 also
suggests further retrenchment in farm household spending
(61) and capital expenditures (29) in the fourth quarter
relative to a year earlier. 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
The four-quarter percentage changes in land values and
cash rents are reported in Table 2.3 In the third quarter of
2015, quality farmland values fell modestly (2.6 percent)
compared with a year earlier. As seen in Figure 1, in two
of the past four reporting periods, quality farmland values
have declined modestly compared with year-earlier levels;
however, the net percentage change over this four-quarter

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

–2.6%
50
4.7%
77

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

0.7%
43
2.5%
80

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:Q3 survey.
Expected trends are presented as a diffusion index; see note above for
details about interpreting diffusion indexes.

period is negative. By contrast, ranch or pastureland values
increased from year-earlier levels for the second consecutive quarter. Indeed, ranch or pastureland values rose 4.7
percent in the third quarter, the largest increase since the
first quarter of 2014. Similar to recent surveys, a majority
of bankers expect both quality farmland and ranchland or
pastureland values to decline in the fourth quarter of 2015
compared with a year ago.
Cash rents rebounded modestly in the third quarter of
2015 compared with a year earlier. Quality farmland cash
rents rose 0.7 percent in the third quarter, while rents for
ranchland or pastureland rose 2.5 percent. Bankers expect
that cash rents for both quality farmland and pastureland
or ranchland will decline in the fourth quarter. However,
there appears to be a stronger conviction that cash rents
for quality farmland will decline, as suggested by its much

AGRICULTURAL Finance Monitor

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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:Q3

2013:Q4

2014:Q1

2014:Q2

2014:Q3

2014:Q4

2015:Q1

2015:Q2

2015:Q3

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

2013:Q3

2013:Q4

2014:Q1

2014:Q2

2014:Q3

2014:Q4

2015:Q1

2015:Q2

2015:Q3

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

lower index value of 43, versus an index value of 80 for
ranchland or pastureland. Figure 2 shows the history of
year-over-year percentage changes in cash rents since the
third quarter of 2013.
Outcomes Relative to Previous-Quarter Expectations
Survey-based data are regularly used by economists
and analysts to form expectations about near-term trends
in a particular industry. Accordingly, Table 3 shows thirdquarter farm income, farm household expenditures, and

several other key variables relative to agricultural banker
expectations in the previous (2015:Q2) survey. Relative
to their earlier expectations, bankers reported that farm
income and household spending fell, but by less than what
they had expected. By contrast, the index of capital spending (35) was lower than what they had expected (48). The
demand for loans and the availability of funds in the third
quarter turned out to be modestly less than bankers had
expected, but the rate of loan repayment was modestly
stronger than expected—an actual index value of 83 versus

AGRICULTURAL Finance Monitor

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Table 3

Table 4

2015:Q3 Variables (versus year-ago levels)

Lending Conditions (versus year-ago levels)

Index value
Farm income
Expected
Actual
Difference

36
55
18

Household spending
Expected
Actual
Difference

61
74
13

Capital spending
Expected
Actual
Difference

48
35
–13

Demand for loans
Expected
Actual
Difference

108
104
–4

Availability of funds
Expected
Actual
Difference

104
91
–13

Rate of loan repayment
Expected
Actual
Difference

78
83
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.

an expected value of 78. Figures 6 to 8 show the indexes
of actual and expected loan demand, availability of funds,
and loan repayment rates since the fourth quarter of 2012.
Financial Conditions
Table 4 reports our survey respondents’ assessment of
current (2015:Q3) and prospective (2015:Q4) bank lending
conditions in the Eighth District compared with 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:Q3
survey, instead of a common sample between the current
and previous surveys. The results from Table 4 suggest that

4

Index value
Demand for loans
2015:Q3 (actual)
2015:Q4 (expected)

97
106

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

100
100

Rate of loan repayment
2015:Q3 (actual)
2015:Q4 (expected)

80
74

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:Q3 survey.

bankers expect a modest upswing in loan demand in the
fourth quarter but a more sizable drop in the rate of loan
repayment. They further expect little change in the availability of funds in the fourth quarter compared with a
year earlier.
Table 5 presents average interest rates on fixed- and
variable-rate loan products in the second quarter of 2015
compared with rates in the third quarter of 2015. Interest
rates rose modestly across the three fixed- and variable-rate
loan categories during the third quarter. For fixed-rate
loans, loans on operating rates rose 11 basis points, loans
for machinery or other intermediate-term loans rose 10
basis points, and loans secured by real estate rose 8 basis
points. On average, interest rates on variable-rate loans for
these three products also rose, but by much less—ranging
from 2 to 5 basis points.
Special Questions
Table 6 reports the results of two special questions
posed to the bankers in the survey. The first question was
designed to reveal potential sources of risk to the farming
and ranching sector in the short-term. The bankers were
asked to rank the following risks from 1 to 5, with 1 indicating the highest probability of occurrence (in their view)
and 5 indicating the lowest probability of occurrence: (a)
a sharp rebound in petroleum prices, (b) a weaker-thanexpected fall harvest, (c) a sharp fall in livestock (cattle,
hogs, and poultry) prices, (d) an unexpected increase in
interest rates, and (e) a larger-than-expected decline in

AGRICULTURAL Finance Monitor

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5

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 2015:Q4 are calculated using only the responses from the 2015:Q3 survey.

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

2012
Q4

2013
Q1

Expected
2013
Q2

2013
Q3

2013
Q4

2014
Q1

2014
Q2

2014
Q4

2015
Q1

2015
Q2

2015
Q3

2015
Q4

2014
Q3

2014
Q4

2015
Q1

2015
Q2

2015
Q3

2015
Q4

2014
Q3

2014
Q4

2015
Q1

2015
Q2

2015
Q3

2015
Q4

2014
Q3

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

2012
Q4

2013
Q1

Expected
2013
Q2

2013
Q3

2013
Q4

2014
Q1

2014
Q2

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

2012
Q4

2013
Q1

Expected
2013
Q2

2013
Q3

2013
Q4

2014
Q1

2014
Q2

AGRICULTURAL Finance Monitor

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6

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 2015:Q4 are calculated using only the responses from the 2015:Q3 survey.

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

2012
Q4

2013
Q1

2013
Q2

2013
Q3

2013
Q4

2014
Q1

2014
Q2

2014
Q3

2014
Q4

2015
Q2

2015
Q1

Expected
2015
Q4

2015
Q3

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

2012
Q4

2013
Q1

2013
Q2

2013
Q3

2013
Q4

2014
Q1

2014
Q2

2014
Q3

2014
Q4

2015
Q1

2015
Q2

2015
Q3

2015
Q4

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

Actual

115

Expected

110
105
100
95
90
85
80
75
70

2012
Q4

2013
Q1

2013
Q2

2013
Q3

2013
Q4

2014
Q1

2014
Q2

2014
Q3

2014
Q4

2015
Q1

2015
Q2

2015
Q3

2015
Q4

AGRICULTURAL Finance Monitor

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Table 5

Table 6

Interest Rates (%)

Special Questions

Operating
Fixed
Variable

2015:Q3

2015:Q2

Change

5.43
4.88

5.32
4.86

0.11
0.02

Machinery/
intermediate-term
Fixed
Variable

5.52
5.15

5.42
5.12

0.10
0.03

Farm real estate
Fixed
Variable

5.17
4.96

5.09
4.92

0.08
0.05

Please rank the following risks to the farming and ranching
sector in your area over the second half of 2015, with 1 indicating the highest probability of occurrence and 5 indicating
the lowest probability of occurrence.
Share of ranking 1 (highest probability of occurring)
Petroleum prices rebound sharply
The fall harvest is weaker than expected
Livestock prices (cattle, hogs, and poultry) fall sharply
Interest rates rise unexpectedly
Farmland prices fall by more than expected

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.

farmland prices. Table 6 reports the shares of the responses
for the risks chosen as having the highest probability of
occurrence. The results show that, overwhelmingly, bankers
view a weaker-than-expected fall harvest and a sharp fall
in livestock prices as the largest potential risks to farmers
in their area. Relatively few bankers thought that the other
three events have the largest probability of occurrence.
The second special question asked agricultural bankers
to think long-term and assess the prospects for the agricultural sector in their area over the next 5 to 10 years. For
the most part, bankers were optimistic, or at least neutral,
about the longer-term prospects for the farming and ranching industry in their area. A little less than half of banker
respondents were optimistic, while only about 15 percent
were pessimistic. A little more than one-third (36 percent)
were neutral about the industry’s longer-term prospects. n

4.0
60.0
24.0
4.0
8.0

What is your assessment of the prospects for the agricultural
sector in your area over the next 5 to 10 years?
Share of total respondents
Optimistic
Pessimistic
Neutral

48.5
15.2
36.4

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 change in land values and cash rents are based on
common responses. That is, a respondent must have been in both the
2015:Q3 and 2014:Q3 samples.

The survey is produced by staff at the Federal Reserve Bank of St. Louis: Gary Corner, Senior Examiner, Banking Supervision and Regulation Division;
Lowell R. Ricketts, Senior Analyst, Community Affairs Research; and 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 November 12, 2015
© 2015, Federal Reserve Bank of St. Louis. Views expressed do not necessarily reflect official positions of the Federal Reserve System.

7

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