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2017 n First Quarter

AGRICULTURAL Finance Monitor

Selected Quotes from
Banker Respondents Across the
Eighth Federal Reserve District
Real estate values fell in 2016; however, recent
land sales are showing some strength, which
has helped to bring prices back up slightly.
Soybean prices held up well, which allowed
farmers to market their 2016 crop at a higher
price than projected. Although corn prices
have trended lower, producing some concern
for 2017 crop income, the majority of our
customers are very good marketers and will
do okay by holding their costs down. Most
have renegotiated any leases that they perceived to be too high to cash flow; this has
raised expectations for a profitable year due
to some input costs being reduced for 2017.
(Illinois)
Farmers are experiencing slim margins, but
also an extended time frame in revenue collections. For example, farm program payments for low market prices are not paid for
14-15 months after harvest. (Arkansas)
Poultry production income remains stable,
with some expansion taking place. Cattle
prices have softened, which has adversely
affected overall farm income. Credits still are
performing well. (Arkansas)
Demand for recreational ground (trees, no
timber) has increased dramatically in the past
year, with prices paid exceeding that of pastureland. Income in 2016 exceeded income in
2015, which was affected by excessive moisture. (Missouri)
NOTE: These are generally verbatim quotes, but
some were lightly edited to improve readability.

The twentieth quarterly survey of agricultural credit conditions was conducted by the Federal Reserve Bank of St. Louis from March 15, 2017, through
March 31, 2017. The results presented here are based on the responses from
32 agricultural banks within the boundaries of the Eighth Federal Reserve
District.1 The Eighth District includes all or parts of seven Midwest and MidSouth 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
Farm income declined in the first quarter of 2017 from a year earlier
according to the latest survey of agricultural bankers in the Eighth Federal
Reserve District. Proportionately more bankers reported that farm households
continued to trim household expenditures and capital spending in the first
quarter from a year earlier. Slightly more bankers reported that declines in
farm incomes and farm household expenditures in the first quarter exceeded
their expectations from three months earlier. Quality farmland and ranchland
or pastureland values rose sharply in the first quarter from a year earlier. The
increase in quality farmland values in the first quarter was the largest in three
and a half years. However, the majority of bankers expect farmland values to
decline in the second quarter. Cash rents for quality farmland and ranchland
or pastureland declined slightly in the first quarter. Interest rates on fixedrate loans secured by farm real estate have increased by only 10 basis points
over the past four quarters (0.10 percentage points). Results from our special
questions suggest that the overall quality of the Eighth District farm loan portfolio remains stable (no significant repayment problems). We also asked our
bankers to cite their top concern for 2017. A little less than two-thirds (62
percent) reported that further declines in farm incomes was their number one
concern.

Survey Results
Farm Income and Expenditures
Similar to the past several reports, proportionately more bankers continue
to report year-over-year declines in farm income. In the first quarter of 2017,
the farm income diffusion index measured 55. [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.] However, the percentage
reporting falling farm incomes has been declining modestly since the second
quarter of 2016, as evidenced by a steady rise in the diffusion index. The index
is projected to increase modestly further in the second quarter of 2017, from
55 to 62. This development is heartening because it suggests that a rising
number of bankers—though still a minority—are noting that farm income
has stopped declining from year-earlier levels. Bankers noted a similar pattern
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In the survey, bankers are regularly 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 2017. 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. We reasonably interpret a “remain constant” response as half a “decrease” response and
half an “increase” response. Hence, index values from 0 to 99 indicate a majority witnessed/expected decreases; index values from 101
to 200 indicate a majority witnessed/expected increases; and an index value of 100 indicates an even split. More specifically, lower index
values indicate proportionately more bankers witnessed/expected decreases.
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
2017:Q1 (actual)
2017:Q2 (expected)

55
62

Household spending
2017:Q1 (actual)
2017:Q2 (expected)

72
75

Capital spending
2017:Q1 (actual)
2017:Q2 (expected)

43
50

NOTE: Actual and expected values for the indexes use all responses from
the 2017:Q1 survey.

for farm household expenditures and capital outlays, as
their diffusion indexes have also risen since early 2016
(see Table 1 and Figures 3 to 5). Readers are reminded
that farm income is highly volatile and subject to seasonal
fluctuations.

Current and Expected Land Values and Cash Rents
Perhaps somewhat surprisingly, quality farmland and
ranchland or pastureland values posted healthy increases
in the first quarter of 2017. Compared with four quarters
earlier, quality farmland values increased by 10 percent
in the first quarter, while ranchland or pastureland values
rose by 7.2 percent. By contrast, cash rents for quality
farmland and ranchland or pastureland declined slightly
in the first quarter—but the declines were the smallest in
more than a year. As evidenced by the diffusion indexes
expected in the second quarter (below 100), proportionately more bankers believe that the first-quarter increase
in both types of land values will not carry forward into the

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

10.0%
78
7.2%
92

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

–0.9%
69
–0.7%
86

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 2017:Q1 survey.
Expected trends are presented as a diffusion index; see the note above
for details about interpreting diffusion indexes.

second quarter of 2017 (see Table 2 as well as Figures 1
and 2).

Outcomes Relative to Previous-Quarter Expectations
Table 3 reports diffusion indexes for farm income,
household expenditures, and three bank-related metrics
for the first quarter of 2017 as well as the expected values
for the first quarter that agricultural bankers reported in the
fourth quarter of 2016. [NOTE: For Table 3, we compute
diffusion indexes using only those banks that responded
to the 2016 fourth-quarter survey and the 2017 first-quarter
survey.] As seen by the smaller actual diffusion indexes
(relative to the expected indexes), a slightly larger percent-

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

Quality Farmland
Ranchland or Pastureland
2015:Q1

2015:Q2

2015:Q3

2015:Q4

2016:Q1

2016:Q2

2016:Q3

2016:Q4

2017:Q1

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

Quality Farmland
Ranchland or Pastureland

–20
–25

2015:Q1

2015:Q2

2015:Q3

2015:Q4

2016:Q1

2016:Q2

2016:Q3

2016:Q4

2017:Q1

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

age of bankers reported that farm incomes and farm household expenditures declined in the first quarter by more than
they expected three months earlier. Bankers reported a
similar development for the demand for bank loans. By
contrast, capital spending matched expectations from three
months earlier. Slightly more bankers noted greater availability of funds and a higher rate of loan repayment than
were expected three months earlier.

Financial Conditions
Table 4 reports our survey respondents’ assessment of
prospective bank lending conditions in the Eighth District
in the second quarter of 2017 relative to the first quarter.
As noted in previous surveys, the actual index values for
first-quarter values reported in Table 4 may differ from
those reported in Table 3 because Table 4 uses all responses
from the first-quarter 2017 survey, instead of a common

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Table 3

Table 4

2017:Q1 Variables (versus year-ago levels)

Lending Conditions (versus year-ago levels)

Index value
Farm income
Expected
Actual
Difference

56
44
–11

Household spending
Expected
Actual
Difference

67
61
–6

Capital spending
Expected
Actual
Difference

44
44
0

Demand for loans
Expected
Actual
Difference

133
117
–17

Availability of funds
Expected
Actual
Difference

100
111
11

Rate of loan repayment
Expected
Actual
Difference

83
89
6

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.

sample between the current and previous surveys. Looking
forward, bankers’ expectations for loan demand, availability
of funds, and rate of loan repayment in the second quarter
are little changed from the previous quarter. Still, a slightly
larger percentage of bankers expect year-over-year increases
in loan demand and availability of funds in the second
quarter relative to a year earlier (an index value more than
100); the opposite is the case for loan repayment rates,
which are expected to worsen slightly in the second quarter
(an index value less than 100).
Table 5 presents average interest rates on fixed- and
variable-rate loan products in the fourth quarter of 2016
and the first quarter of 2017. Interest rates were modestly

Index value
Demand for loans
2017:Q1 (actual)
2017:Q2 (expected)

103
107

Availability of funds
2017:Q1 (actual)
2017:Q2 (expected)

110
107

Rate of loan repayment
2017:Q1 (actual)
2017:Q2 (expected)

86
82

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 2017:Q1 survey.

Table 5
Interest Rates (%)
2017:Q1

2016:Q4

Change

Operating
Fixed
Variable

5.63
5.13

5.66
5.04

–0.03
0.10

Machinery/
intermediate-term
Fixed
Variable

5.93
5.39

5.86
5.21

0.07
0.18

Farm real estate
Fixed
Variable

5.37
5.19

5.34
5.02

0.03
0.17

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.

higher in the first quarter for all categories except for fixedrate operating loans. Although not shown in the table,
interest rates on fixed-rate farm real estate loans have
increased by 10 basis points (0.10 percentage points) over
the past four quarters, while interest rates on variable-rate
real estate loans have increased by 2 basis points.

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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

2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q1
Q4
Q2

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

2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q1
Q4
Q2

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

Actual

Expected

10
–10

2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q1
Q4
Q2

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 2017:Q2 are calculated
using only the responses from the 2017:Q1 survey. There is no actual value (and hence no bar) for the final quarter shown in each figure. For all previous quarters, if no bar is shown, the
actual value is 100.

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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
70

Actual

Expected

2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q1
Q4
Q2

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

2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q1
Q4
Q2

Figure 8
Rate of Loan Repayment: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
110

Actual

Expected

100
90
80
70
60
50

2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q1
Q4
Q2

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Special Questions
Table 6 reports the results of three special questions
posed to our agricultural bankers. The first question asked
each banker to rate their farm loan portfolio based on
repayment rates, while the second question asked bankers
about the borrowing capacity of their customers. These
same two questions were posed to bankers four quarters
earlier. In general, not much has changed over the past
year. In the first quarter of 2017, 80 percent of all farm loans
were current or had no significant repayment problems; a
year earlier, the percentage was 78 percent. Only 14 percent
of farm loans had minor repayment problems, the same
percentage as a year earlier. According to the results from
the second question, bankers reported that one-third of
their customers had borrowed up to their loan limit. This
percentage was also little changed from four quarters earlier
(34 percent).
Finally, the last question asked bankers to list their top
concern for 2017. A little less than two-thirds of bankers
(62 percent) reported that further declines in farm incomes
was their number one concern. Equal percentages (14 percent) cited rising interest rates and an unusual weather
pattern as their top concern. No bankers cited declining
farmland values as their top concern. n

Table 6

Notes

Percent of respondents
Further declines in farm incomes
Rising interest rates
Rising input costs (e.g., seed, fuel)
Declining farmland values
An unusual weather pattern
Weak or falling sales and/or profits of
agribusinesses in your area
Other

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 December 31, 2016,
there were 235 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.

Special Questions
Please indicate the percentage of the dollar amount of your
bank’s farm loan portfolio that currently falls within each of
the following repayment classifications.
Percent of farm loans
No significant repayment problems
Minor repayment problems which can be
remedied fairly easily
Major repayment problems requiring more
collateral and/or long-term workouts
Severe repayment problems which will likely
result in loan losses and/or require forced sales
of borrower’s real assets

80
14
5

Approximately what percent of your customers have borrowed up to their loan limit?
Percent of customers

What is your top concern this year? (Please choose one
answer.)
62
14
3
0
14
7
0

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 May 11, 2017
© 2017, Federal Reserve Bank of St. Louis. Views expressed do not necessarily reflect official positions of the Federal Reserve System.

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

Full text of Agricultural Finance Monitor : 2017 First Quarter

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