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2016 n Third Quarter

AGRICULTURAL Finance Monitor

Selected Quotes from
Banker Respondents Across the
Eighth Federal Reserve District
The 2014 Farm Bill is proving to be inadequate
as a “safety net” for southern agriculture:
Farmers are carrying a major “account receivable” for 14 to 15 months. Most other types
of businesses cannot survive under those conditions. Improved efficiency in the sector is the
only reason most farmers have survived.
(Arkansas)
Poultry firms have increased their “out time,”
which reduces the number of flocks per year.
This development will reduce income and lead
to some repayment challenges. (Arkansas)
Farmers generally keep current on longerterm debts at the expense of operating loans.
Most farmers have equity to fall back on. I had
a few borrowers with a 2015 carryover that
we dealt with last winter. If crops are good,
most farmers will barely get by. (Illinois)
We are still seeing farmland sales in our area
of between $10,000 and $15,000 per acre.
(Illinois)
The financially conservative farmer is probably going to survive during this period of low
grain and cattle prices. The young farmers
with very little equity are really going to struggle. It looks like the corn yields are coming in
exceptionally high, which will help everyone
pay expenses. I think there will be very little
left to purchase land, machinery, and other
equipment. (Missouri)
Crops are 100 percent better than last year.
Most operating lines were rewritten last year
because of extremely poor crops. Payments
are expected to be made this year. We have
not seen any good cropland sold in the area
since last spring. (Missouri)
NOTE: These are generally verbatim quotes, but
some were lightly edited to improve readability.

The eighteenth quarterly survey of agricultural credit conditions was
conducted by the Federal Reserve Bank of St. Louis from September 15, 2016,
through September 30, 2016. The results presented here are based on the
responses from 34 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,
particularly with respect to agricultural lending conditions. Users are also
cautioned against drawing firm conclusions about longer-run trends in farmland values.2

Executive Summary
According to the latest survey of agricultural bankers in the Eighth Federal
Reserve District, a solid majority reported that farm income declined in the
third quarter of 2016 relative to a year ago. Consistent with previous surveys,
proportionately more bankers continue to report that falling farm income is
pressuring farmers to trim their household expenditures and farming- and
ranching-related capital outlays. Given the difficulties in the farm sector, it
is perhaps surprising that our survey results showed that quality farmland
values were unchanged and ranch or pastureland values were up slightly from
a year earlier in the third quarter. Nonetheless, cash rents for both quality
farmland and ranch or pastureland declined modestly in the third quarter.
Our survey results also revealed that demand for loans in the third quarter
was a bit stronger than what was expected three months earlier, while the
availability of funds mostly met expectations. Loan repayment rates were
slower in the third quarter, but consistent with bankers’ expectations from
three months earlier. Our two special questions focused on those farmers who
are experiencing loan repayment issues. According to our lender survey, the
largest increase in repayment problems is for operating lines of credit. A
majority of bankers believe that, in response, unpaid portions of operating
lines of credit will require additional collateral to roll over this debt.

Survey Results
Farm Income and Expenditures
Survey results continue to show that a majority of bankers report a
decrease in farm income compared with a year earlier. In the third quarter,
the diffusion index of farm income was 41 (see Table 1). Although this was
modestly higher than in the second quarter (24), the third-quarter survey was
the eleventh consecutive quarter where the index of farm income was below
100. [NOTE: An index value of 100 would indicate that an equal percentage
of bankers reported increases and decreases in farm income relative to a year
earlier.] Expectations for the fourth quarter are slightly better (index value
of 47), but proportionately more bankers continue to expect a decline in farm
income from a year earlier. Bankers hold broadly similar views of farm household spending and farm capital expenditures. Namely, a majority of bankers
continue to report declines in household spending and capital expenditures
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 2016. 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
2016:Q3 (actual)
2016:Q4 (expected)

41
47

Household spending
2016:Q3 (actual)
2016:Q4 (expected)

59
53

Capital spending
2016:Q3 (actual)
2016:Q4 (expected)

34
26

NOTE: Actual and expected values for the indexes use all responses from
the 2016:Q3 survey.

in the third quarter relative to a year earlier. As reflected
in the smaller diffusion index, a slightly larger percentage
of bankers expect that household spending and capital
expenditures will also fall in the fourth quarter compared
with a year earlier. Readers are cautioned that farm income
is highly volatile and subject to seasonal fluctuations.

Current and Expected Land Values and Cash Rents
Trends in land values improved slightly in the third
quarter according to the results of the survey reported in
Table 2. Compared with four quarters earlier, quality farmland values in the Eighth District were unchanged in the
third quarter. This compares favorably with the second
quarter, when quality farmland values fell by 1 percent
from a year earlier. Similarly, ranch or pastureland values
rose 1.1 percent in the third quarter after falling by 7.4
percent in the second quarter. Still, proportionately more
bankers expect values to decline over the next 3 months
for both quality farmland and ranch or pastureland. By
contrast, cash rents for quality farmland and ranch or pastureland fell by 6.1 percent and 3.9 percent, respectively,

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

0.0%
61
1.1%
62

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

–6.1%
50
–3.9%
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 2016:Q3 survey.
Expected trends are presented as a diffusion index; see note above for
details about interpreting diffusion indexes.

in the third quarter relative to a year earlier. Like land
values, bankers expect that cash rents will decline in the
fourth quarter.

Outcomes Relative to Previous-Quarter Expectations
Table 3 reports farm income, household expenditures,
and several other key economic metrics in the third quarter
relative to the expectations of agricultural bankers from
the survey taken in the second quarter of 2016. [NOTE:
For Table 3, we compute diffusion indexes using only those
banks that responded to the first- and second-quarter
surveys.] The results show that proportionately more
bankers reported that farm incomes and capital expenditures declined in the third quarter compared with their
expectations from three months earlier. However, as indicated by an expected value of 43 and actual value of 57,

AGRICULTURAL Finance Monitor

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

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Figure 1
Year-Over-Year Change in Average Eighth District Land Values
Percent Change
6

Quality Farmland
Ranchland or Pastureland

4
2
0
–2
–4
–6
–8
2014:Q3

2014:Q4

2015:Q1

2015:Q2

2015:Q3

2015:Q4

2016:Q1

2016:Q2

2016: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
10
5
0
–5
–10
–15
–20

Quality Farmland
Ranchland or Pastureland

–25
2014:Q3

2014:Q4

2015:Q1

2015:Q2

2015:Q3

2015:Q4

2016:Q1

2016:Q2

2016:Q3

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

proportionately fewer bankers reported that household
spending declined in the third quarter compared with their
expectations from three months earlier. In terms of key
financial indicators, bankers reported that the demand for
loans in the third quarter was a bit stronger than expected
from three months earlier, while the availability of funds
was slightly less than expected. Loan repayment rates, however, were in line with expectations. Components displayed
here may not sum to totals due to rounding.

Financial Conditions
Table 4 reports our survey respondents’ assessment of
current and prospective bank lending conditions in the
Eighth District in the third and fourth quarters of 2016,
respectively. [NOTE: Each assessment is 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 third
quarter 2016 survey, instead of a common sample between

AGRICULTURAL Finance Monitor

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

Table 3

Table 4

2016:Q3 Variables (versus year-ago levels)

Lending Conditions (versus year-ago levels)

Index value
Farm income
Expected
Actual
Difference

52
33
–19

Household spending
Expected
Actual
Difference

43
57
14

Capital spending
Expected
Actual
Difference

26
21
–5

Demand for loans
Expected
Actual
Difference

100
117
17

Availability of funds
Expected
Actual
Difference

106
100
–6

Rate of loan repayment
Expected
Actual
Difference

78
78
0

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.

the current and previous surveys. The results from Table 4
suggest that proportionately more bankers expect an
increase in loan demand in the fourth quarter of 2016 relative to a year earlier (index value of 121). By contrast, the
index value of loan demand was 100 in the third quarter,
which indicated no change in demand from a year earlier.
However, a slightly smaller percentage of bankers expect
the availability of funds to decline in the fourth quarter of
2016 (index value of 93) compared with the third quarter
(index value of 100). Although the index of loan repayment
rates expected in the fourth quarter (93) is larger than that
reported in the third quarter (81), the majority of respondents still report that loan repayment rates remain below
year-earlier levels.

4

Index value
Demand for loans
2016:Q3 (actual)
2016:Q4 (expected)

100
121

Availability of funds
2016:Q3 (actual)
2016:Q4 (expected)

100
93

Rate of loan repayment
2016:Q3 (actual)
2016:Q4 (expected)

81
93

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 2016:Q3 survey.

Table 5 presents average interest rates on fixed- and
variable-rate loan products in the second and third quarters
of 2016. Interest rates on fixed-rate operating loans were
unchanged in the third quarter, while rates on fixed-rate
loans for machinery and other intermediate-term investments fell 5 basis points in the third quarter. By contrast,
fixed-rate farm real estate loans rose by a healthy 25 basis
points in the third quarter to an average of 5.37 percent.
For variable-rate loan products, rates fell modestly for operating loans, but increased slightly for machinery and other
intermediate-term investments and farm real estate loans.

Special Questions
Table 6 reports the results of two special questions that
we posed to our agricultural bankers. Given recent declines
in farm incomes, we asked bankers about their expectations
for loan repayment problems with their borrowers and
how these problems were likely to be resolved. The first
question asked bankers to identify which loan categories
were expected to have the largest increase in repayment
problems. More than half of bankers (59 percent) reported
that operating loans were expected to have the largest repayment problems; 13 percent of bankers identified machinery and equipment loans as an area of concern. However,
nearly one in five bankers (19 percent) reported that they
anticipated no increase in loan repayment problems.
The second question asked bankers about the likely
outcome they expect for borrowers who are experiencing
loan repayment problems. A little more than half of respon-

AGRICULTURAL Finance Monitor

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

Expected

2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

Figure 4
Household Spending: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
130
120
110
100
90
80
70
60
50
40

Actual

Expected

2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

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

Actual

Expected

2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

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:Q4 are calculated
using only the responses from the 2016:Q3 survey. There is no actual value (and hence no bar) for the final quarter shown in this figure. For all previous quarters, if no bar is shown, the
actual value is 100.

AGRICULTURAL Finance Monitor

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

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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

Expected

2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

Figure 7
Availability of Funds: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
140
135

Actual

130

Expected

125
120
115
110
105
100
95
90

2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

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
50

2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

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:Q4 are calculated
using only the responses from the 2016:Q3 survey. There is no actual value (and hence no bar) for the final quarter shown in this figure. For all previous quarters, if no bar is shown, the
actual value is 100.

AGRICULTURAL Finance Monitor

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

Table 5

Table 6

Interest Rates (%)

Special Questions
2016:Q3

2016:Q2

Change

Operating
Fixed
Variable

5.55
5.05

5.55
5.09

0.00
–0.04

Machinery/
intermediate-term
Fixed
Variable

5.65
5.35

5.70
5.28

–0.05
0.07

Farm real estate
Fixed
Variable

5.37
5.01

5.12
4.97

0.25
0.04

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.

dents (53 percent) reported that borrowers will be forced
to put up additional collateral to cover the unpaid portion
of their operating line of credit. A little more than one in
five bankers (22 percent) believe that some belt-tightening
will be required, but with no defaults expected; 19 percent
of bankers expect to see a longer-term workout with their
existing borrower. Only 3 percent of bankers expect their
borrowers to refinance with another lender, while 3 percent expect their borrowers to reduce the size of their
operations or exit the farming industry. n

Which of these loan categories do you expect will have the
largest increase in repayment problems?
Percent of respondents
Operating lines of credit
Machinery and equipment loans
Real estate loans
Loans made for farm household expenses
No increase in problems expected

59
13
9
0
19
100

Which of these statements do you feel best characterizes
the expected near-term outcome for borrowers who are
experiencing problems?
Percent of respondents
Belt tightening, but no defaults
Collateralizing unpaid portions (carryover)
of operating lines
Long-term workout with existing lender
Refinancing with another lender
Reducing size of operations or exiting farming

22
53
19
3
3
100

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, 2016,
there were 252 banks in the Eighth Federal Reserve District that met the 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.

The survey is produced by staff at the Federal Reserve Bank of St. Louis: Larry D. Sherrer, Senior Examiner, Banking Supervision and Regulation Division;
Jonas Crews and Brian Levine, Research Associates; 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 10, 2016
© 2016, Federal Reserve Bank of St. Louis. Views expressed do not necessarily reflect official positions of the Federal Reserve System.

7

IL
Columbia
Jefferson City

St. Louis
Evansville

MISSOURI

Owensboro
Springfield

ARKAN
ANSAS
AS

Jackson

Memphis

Little Rock-North Little Rock

Hot Springs

Pine Bluff

Texarkana

Elizabethtown

Bowling Green

Fayetteville-Springdale-Rogers
Jonesboro
Fort Smith

Louisville-Jefferson County

MISS
SIS
SS
SIPPI
S
IPPI