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2017 n Second Quarter

AGRICULTURAL Finance Monitor

Selected Quotes from
Banker Respondents Across the
Eighth Federal Reserve District
The farm economy in northeast Missouri could
be described as stale. Most people last year
were able to make loan payments because of
higher soybean yields. We do not expect that
this year. We are also noticing some alarming
trends in off-balance-sheet transactions for
farmers, especially equipment leasing. Many
agricultural customers are incurring mandatory payments each year, but with no assets
to back up the debt. Input prices are generally
higher, but commodity prices are down and
margins continue to shrink. (Missouri)
Crops are planted, have emerged, and are in
good condition. The biggest concerns today
are low commodity prices and the future of
government price supports. (Illinois)
The cumulative effect of multiple-year net
income declines has weakened many customers’ financial stability and influenced
many to retire or quit. Farm program payment
delays have resulted in cash flow problems for
operations that have good profit margins.
(Arkansas)
In the past three years, our agriculture customers have experienced low prices, but with
adequate production in most areas. Some
customers who have experienced financial
difficulties the past two years cannot survive
another large loss for 2017. (Tennessee)
NOTE: These are generally verbatim quotes, but
some were lightly edited to improve readability.

The twenty-first quarterly survey of agricultural credit conditions was
conducted by the Federal Reserve Bank of St. Louis from June 15, 2017,
through June 30, 2017. The results presented here are based on the responses
from 35 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 during the second quarter of 2017 declined
relative to the second quarter of last year. Respondents have consistently
reported lower year-over-year levels of income since the fourth quarter of
2013. This period correlates with an extended period of declining prices for
commodities. Both survey results and comments from bankers indicate the
long-term effect has had a negative impact on the financial condition of their
borrowers. For the second-quarter 2017 survey, the impact of lower income
shows up in lower household spending and lower capital spending compared
with the same quarter a year ago. Furthermore, a majority of respondents feel
these trends will continue into the third quarter of 2017, with lower income
and spending relative to the same period last year. Values for quality farmland
and levels of cash rents for farmland also declined over the past year. Going
against the overall trends, a majority of bankers felt ranchland and pastureland values and rents improved relative to a year ago. However, those results
are not expected to continue, as a slight majority of bankers project ranchland
and pastureland values and rents will decline next quarter. Responses to bankrelated activities indicate that loan demand increased relative to the second
quarter of last year. A majority of bankers reported a lower level of availability of funds relative to last year while also reporting a declining rate of repayment on loans. Three special questions included in the survey asked about
the financial condition of farmers and also about the impact of flooding on
farm income for this year. Results show that most bankers assessed the financial condition of farmers and ranchers in their area as having experienced
modest deterioration from a year earlier. The Food and Agricultural Policy
Research Institute at the University of Missouri has projected that net farm
income will fall about 8 percent in 2017 from 2016, and 75 percent of bankers
in this survey felt those projections were about right. The remainder were
fairly evenly split that the projections were either too optimistic or too pessimistic. Survey responses indicated that the effects of flooding on farm income
in 2017 were only modest or insignificant.

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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 second 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:Q2 (actual)
2017:Q3 (expected)

50
50

Household spending
2017:Q2 (actual)
2017:Q3 (expected)

74
80

Capital spending
2017:Q2 (actual)
2017:Q3 (expected)

47
57

NOTE: Actual and expected values for the indexes use all responses from
the 2017:Q2 survey.

Survey Results
Farm Income and Expenditures
Survey results indicate that proportionately more
bankers continue to report year-over-year declines in farm
income. This is reflected in the diffusion index value of 50
and marks the 14th consecutive quarter with a value below
100. [NOTE: An index value of 100 would indicate an equal
percentage of bankers reported increases and decreases in
farm income relative to a year earlier.] The value for the
current quarter is only slightly worse than the value of 55
from the first quarter of 2017. When asked about expectations for farm income for the third quarter, responses also
yielded a diffusion value of 50. This indicates that, while a
majority of bankers still feel farm income is down relative
to the same period from last year, the number is at least
not increasing. Levels of household spending and capital
spending, both closely tied to farm income, reflected stagnant trends. While a majority of bankers feel that household spending decreased relative to the same period last

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

–0.8%
88
4.5%
90

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

–1.8%
84
7.9%
96

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:Q2 survey.
Expected trends are presented as a diffusion index; see the note above
for details about interpreting diffusion indexes.

year, the proportion is slightly improved from the previous
survey. A majority of bankers expect that, for the third quarter, household spending will decline relative to last year;
but proportionately fewer bankers responded that way,
resulting in a small increase in the index from 74 to 80.
Also, survey results indicate capital spending levels were
down from a year ago but had improved slightly from the
previous survey. While a majority of bankers expect that
capital spending for the third quarter will still decline from
last year’s levels, that category of spending showed the
highest degree of improvement, with the index increasing
from 47 to 57. (See Table 1 and Figures 3 to 5.) Readers
are reminded that farm income is highly volatile and subject to seasonal fluctuations.

AGRICULTURAL Finance Monitor

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Figure 1
Year-Over-Year Change in Average Eighth District Land Values
Percent Change
12
9
6
3
0
–2
–6
–9

Quality Farmland
Ranchland or Pastureland
2015:Q2

2015:Q3

2015:Q4

2016:Q1

2016:Q2

2016:Q3

2016:Q4

2017:Q1

2017:Q2

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
–25

Quality Farmland
Ranchland or Pastureland
2015:Q2

2015:Q3

2015:Q4

2016:Q1

2016:Q2

2016:Q3

2016:Q4

2017:Q1

2017:Q2

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

Current and Expected Land Values and Cash Rents
Table 2 shows year-to-year changes in land values and
cash rents. Quality farmland values and rents for quality
farmland registered small decreases in the second-quarter
survey compared with results from four quarters earlier.
Quality farmland values decreased by less than 1 percent
in the second quarter, while cash rents declined 1.8 percent
relative to a year ago. However, ranchland and pastureland

exhibited increases compared with a year earlier. Ranchland
and pastureland values increased 4.5 percent and rents
improved by 7.9 percent. As shown in the index values,
proportionately more bankers expect quality farmland values and rents will decline in the third quarter of 2017 relative to a year ago. Respondents also expect that ranchland
and pastureland values and rents for the third quarter will
decline relative to a year ago.

AGRICULTURAL Finance Monitor

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Table 3

Table 4

2017:Q2 Variables (versus year-ago levels)

Lending Conditions (versus year-ago levels)

Index value
Farm income
Expected
Actual
Difference

63
50
–13

Household spending
Expected
Actual
Difference

75
75
0

Capital spending
Expected
Actual
Difference

50
46
–4

Demand for loans
Expected
Actual
Difference

109
122
13

Availability of funds
Expected
Actual
Difference

109
96
–13

Rate of loan repayment
Expected
Actual
Difference

83
83
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.

Outcomes Relative to Previous-Quarter Expectations
Table 3 reports diffusion indexes for farm income,
household expenditures, and three bank-related metrics for
the second quarter of 2017, as well as the expected values
for the second quarter that bankers reported in the firstquarter survey of 2017. [NOTE: For Table 3, we compute
diffusion indexes using only those banks that responded to
both the 2017 first-quarter survey and the current survey.]
As seen by the smaller actual diffusion indexes (relative to
the expected indexes), the proportion of bankers reporting
that farm income declined in the second quarter was slightly
larger than the proportion expecting a decline. For these
banks, no difference between actual and expected was
reported for household spending, while capital spending

Index value
Demand for loans
2017:Q2 (actual)
2017:Q3 (expected)

109
103

Availability of funds
2017:Q2 (actual)
2017:Q3 (expected)

97
93

Rate of loan repayment
2017:Q2 (actual)
2017:Q3 (expected)

76
80

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:Q2 survey.

Table 5
Interest Rates (%)
2017:Q2

2017:Q1

Change

Operating
Fixed
Variable

5.73
5.39

5.53
5.24

0.21
0.15

Machinery/
intermediate-term
Fixed
Variable

5.86
5.48

5.81
5.48

0.05
0.00

Farm real estate
Fixed
Variable

5.43
5.18

5.26
5.07

0.17
0.11

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.

recorded a small difference between actual and expected.
Proportionately more bankers reported that the actual
demand for bank loans during the second quarter of 2017
was greater than had been expected three months earlier,
while the opposite was seen for the availability of funds.
These developments appeared to make no difference in the
rate of loan repayment, as the proportion of bankers who
felt that the actual rates of loan repayments were lower was
equal to the proportion expecting lower rates of repayment.

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

Actual

Expected

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

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

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

AGRICULTURAL Finance Monitor
Financial Conditions
Table 4 reports our survey respondents’ assessment of
prospective bank lending conditions in the Eighth District
in the third quarter of 2017 alongside results for the second
quarter. As noted in previous surveys, the actual index
values for second-quarter values reported in Table 4 may
differ from those reported in Table 3. The reason is that
Table 4 uses all responses from the second-quarter 2017
survey, instead of a common sample between the current
and previous surveys. Overall, bankers’ expectations for
loan demand, availability of funds, and rate of loan repayment in the third quarter are not greatly different. A slightly
lower percentage of bankers, but still a majority, expect
year-over-year loan demand to increase in the third quarter
relative to a year earlier (an index value more than 100). A
slightly lower percentage of bankers feel that availability of
funds will increase relative to a year ago. The percentage
of bankers expecting the rate of loan repayment to increase
is slightly higher but is still less than a majority (an index
value less than 100).
Table 5 presents average interest rates on fixed- and
variable-rate loan products in the second quarter of 2017
and the first quarter of 2017. Interest rates were modestly
higher in the second quarter for all categories except for
variable machinery/intermediate-term loans. Variable rates
for machinery/intermediate-term loans were unchanged
from the first quarter to the second quarter of the year.
The category experiencing the largest increase was fixedrate operating loans, which increased by 21 basis points to
5.73 percent in the second quarter.

Special Questions
Table 6 reports the results of three special questions
posed to our agricultural bankers. The first question asked
bankers to assess the overall change in the financial condition of their borrowers. We also posed this question to our
bankers in the second quarter of 2016. A comparison of
survey results indicates that bankers feel the financial condition of their borrowers also deteriorated in 2017, but not
as significantly as it deteriorated in 2016: Responses to
the 2016 survey assessed that 14 percent of borrowers had
significant deterioration in their financial condition compared with a year earlier, whereas no responses indicated
that in the 2017 survey. Furthermore, the 2016 survey
indicated that 66 percent of bankers assessed modest deterioration in the financial condition of their borrowers,
while 72 percent responded that way in the 2017 survey.
Bankers assessed 17 percent of their borrowers had no

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Table 6
Special Questions
Assess the overall change in the financial condition of
agricultural borrowers (farmers and/or ranchers) in your
area from a year earlier:
Percent of respondents
Significant deterioration
Modest deterioration
No change
Modest improvement
Significant improvement

0
72
25
3
0

According to the latest baseline projections (March 2017)
published by the Food and Agricultural Policy Research
Institute at the University of Missouri–Columbia, U.S. net
farm income (in 2016 dollars) is projected to fall by about
8 percent in 2017. In your view, is this baseline farm income
projection:
Percent of respondents
About right
Too optimistic
Too pessimistic

75
13
13

How did the late-April to early-May flooding affect the
expectations for 2017 farm income in your area?
Percent of respondents
Significantly lowered
Modestly lowered
Did not change

0
47
53

change in financial condition in the 2016 survey, while 25
percent responded in that manner in the 2017 survey.
The second special question asked bankers about the
farm income projections issued in March 2017 by the
University of Missouri’s Food and Agricultural Policy
Research Institute, which indicated a roughly 8 percent
decline in net farm income this year. Three-quarters of
bankers felt that number was about right, with the balance
of remaining responses evenly split among those that felt
the projection was either too optimistic or too pessimistic.
The third special question asked our agricultural bankers
to assess how the late-April to early-May flooding affected

AGRICULTURAL Finance Monitor

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their expectations for farm income this year. A slight major
ity of bankers (53 percent) reported that the spring flooding did not change their expectations. However, only slightly
fewer bankers reported that the flooding modestly lowered
their expectations for farm income. n

Notes

Columbia
Jefferson City

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 June 30, 2017, there
were 237 banks in the Eighth Federal Reserve District that met this criteria.

St. Louis
Evansville

MISSOURI

Owensboro
Springfield

Louisville-Jefferson County
Elizabethtown

Bowling Green

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.

Fayetteville-Springdale-Rogers
Jonesboro
Fort Smith

ARKAN
ANSAS
AS

Jackson

Memphis

Little Rock-North Little Rock

Hot Springs

Pine Bluff

Texarkana

MISS
SIS
SS
SIPPI
S
IPPI

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 August 10, 2017
© 2017, Federal Reserve Bank of St. Louis. Views expressed do not necessarily reflect official positions of the Federal Reserve System.

Full text of Agricultural Finance Monitor : 2017 Second Quarter

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