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2018 n Fourth Quarter

AGRICULTURAL Finance Monitor

Selected Quotes from
Banker Respondents Across the
Eighth Federal Reserve District
Tariffs are beginning to take a heavy
toll on local farmers and agricultural
businesses in our region. (Arkansas)
Due to our contract poultry and swine
operations, our agriculture industry is
more stable than other types of production agriculture. Income and returns are
stable, and we have no row crops in the
area. (Arkansas)
We do not offer variable-rate loan
products at this time. (Arkansas)
There is uncertainty surrounding the grain
and livestock markets. A lot of producers
fear that our export markets will not
return to normal. (Illinois)
We have heard rumors of large farms
filing for bankruptcy. Farmers in our area
still have crops in the field. (Missouri)
Income varies across the region, as part
of our service area experienced extreme
drought and yields as low as 30 percent
below average. Other areas with aboveaverage rainfall saw yields as much as
200 percent above average. (Missouri)
NOTE: These are generally verbatim quotes, but
some were lightly edited to improve readability.

The twenty-seventh quarterly survey of agricultural credit conditions was
conducted by the Federal Reserve Bank of St. Louis from December 15, 2018,
through December 31, 2018. The results presented here are based on the
responses from 22 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
This quarter’s survey assessed the economic and financial conditions in the
District’s agricultural industry from the perspective of agricultural bankers.
For the twentieth consecutive quarter, a majority of agricultural bankers in
the Eighth Federal Reserve District reported that farm income had declined
in the fourth quarter of 2018 compared with a year earlier. Proportionately
more bankers also reported that farm household spending and capital expenditures remained below year-earlier levels in the fourth quarter. Bankers expect
similar conditions to prevail for these three indicators in the first quarter of
2019. Despite expectations of falling land values over the past few surveys,
bankers reported that the rate of increase in quality farmland and ranchland
or pastureland values and cash rents accelerated in the fourth quarter compared with the previous quarter. Interest rates on all six of the fixed- and
variable-rate loan categories rose in the fourth quarter. On average, interest
rates on variable-rate loan products rose by more than those on fixed-rate
loan products. There were three special questions in this quarter’s survey. The
first question asked agricultural bankers about the health of the rural economy
in their region. About two-thirds of bankers reported that local economic conditions were fair, while about a third reported that conditions were good. In
the second special question, bankers were asked about the economic outlook
for 2019. Two-thirds believe that local economic conditions will remain the
same, while a third expect them to worsen in 2019. The third special question
asked bankers their expectations for farmland returns in 2019. Nine in ten
bankers expect farmland returns to be positive but less than 5 percent.

Survey Results
Farm Income and Expenditures
A majority of agricultural bankers continue to report declines in farm
income relative to a year earlier. As seen in Table 1, the diffusion index for
farm income registered a value of 41 in the fourth quarter of 2018. The fourth-­
quarter index was slightly lower than the previous quarter’s value (index value
of 45) and marked the twentieth consecutive quarter with a value below 100.
[NOTE: An index value below 100 indicates that a larger percentage of bankers
reported decreases in farm income relative to a year earlier than increases in
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AGRICULTURAL Finance Monitor

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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 fourth quarter of 2018. 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
2018:Q4 (actual)
2019:Q1 (expected)

41
48

Household spending
2018:Q4 (actual)
2019:Q1 (expected)

68
73

Capital spending
2018:Q4 (actual)
2019:Q1 (expected)

29
48

NOTE: Actual and expected values for the indexes use all responses from
the 2018:Q4 survey.

farm income.] Expectations for farm income in the first
quarter of 2019 were only slightly better (index value of 48).
Responses indicate that household spending and farmrelated capital spending declined in the fourth quarter
from a year earlier. However, the index values suggest
fewer bankers reported declines in household spending
(index value of 68) compared with farm-related capital
expenditures (index value of 29). Bankers are slightly less
pessimistic about the prospects for household spending
and capital expenditures in the first quarter of 2019. The
diffusion indexes for farm income, household spending,
and capital expenditures are reported in Figures 3 to 5,
respectively. Readers are reminded that farm income is
highly volatile and subject to seasonal fluctuations. Readers
are also reminded that the index values in Table 1 are based
on all responses received for the fourth-quarter survey and
thus can differ from the values reported in Figures 3 to 5.
[See note at the bottom of Figure 8.]

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

3.4%
81
6.5%
83

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

2.9%
76
1.3%
88

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 2018:Q4 survey.
Expected trends are presented as a diffusion index; see the note above
for details about interpreting diffusion indexes.

Current and Expected Land Values and Cash Rents
Table 2 reports year-to-year percent changes in current-­
quarter land values and cash rents, and banker expectations
for land values and cash rents over the next three months
(first quarter of 2019). Quality farmland values rose 3.4
percent in the fourth quarter from a year earlier, a modest
acceleration from the 2.5 percent increase registered in the
third quarter. Ranchland or pastureland values increased
by 6.5 percent in the fourth quarter after increasing 1.5
percent in the third quarter. Similar to previous reports,
proportionately more bankers expect quality farmland
values and ranchland or pastureland values to decline over
the next three months (index values of 81 and 83, respec-

AGRICULTURAL Finance Monitor

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Figure 1
Year-Over-Year Change in Average Eighth District Land Values
Percent Change
18

Quality Farmland
Ranchland or Pastureland

15
12
9
6
3
0
–3
–6
–9

2016:Q1

2016:Q2

2016:Q3

2016:Q4

2017:Q1

2017:Q2

2017:Q3

2017:Q4

2018:Q1

2018:Q2

2018:Q3

2018: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
10
5
0
–5
–10
–15
Quality Farmland
Ranchland or Pastureland

–20
–25

2016:Q1

2016:Q2

2016:Q3

2016:Q4

2017:Q1

2017:Q2

2017:Q3

2017:Q4

2018:Q1

2018:Q2

2018:Q3

2018:Q4

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

tively). Cash rents for quality farmland rose 2.9 percent in
the fourth quarter, following a 2 percent gain in the third
quarter. Cash rents for ranchland or pastureland rose by
less, 1.3 percent, after increasing by 0.8 percent in the
third quarter. Similar to farmland and ranchland or pastureland values, proportionately more bankers expect that
cash rents for both types of land will decline over the next
three months. See Figures 1 and 2 for a historical perspective of land values and cash rents, respectively.

Outcomes Relative to Previous-Quarter Expectations
Table 3 reports diffusion indexes for farm income,
household expenditures, farm-related capital expenditures,
and three bank-related financial metrics for the fourth quarter of 2018 compared with the values that were expected
in the previous survey three months earlier. [NOTE: For
Table 3, we compute diffusion indexes using only those
banks that responded to both the 2018 third-quarter and
2018 fourth-quarter surveys.] Overall, compared with their
expectations from three months earlier, proportionately

AGRICULTURAL Finance Monitor

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Table 3

Table 4

2018:Q4 Variables (versus year-ago levels)

Lending Conditions (versus year-ago levels)

Index value
Farm income
Expected
Actual
Difference

42
42
0

Household spending
Expected
Actual
Difference

53
68
16

Capital spending
Expected
Actual
Difference

44
22
–22

Demand for loans
Expected
Actual
Difference

116
126
11

Availability of funds
Expected
Actual
Difference
Rate of loan repayment
Expected
Actual
Difference

79
84
5
105
58
–47

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.

fewer bankers reported that household spending, the
demand for loans, and the availability of funds declined
in the fourth quarter from a year earlier (as noted by the
larger actual value compared with the expected value). By
contrast, proportionately more bankers reported declines
in capital spending and loan repayment rates in the fourth
quarter than they had expected three months earlier.

Financial Conditions
Table 4 reports the District bankers’ assessment of
current and prospective lending conditions in the fourth
quarter of 2018 compared with four quarters earlier. Pro­
portionately more bankers reported an increase in loan
demand from a year earlier in the fourth quarter (diffusion

4

Index value
Demand for loans
2018:Q4 (actual)
2019:Q1 (expected)

123
127

Availability of funds
2018:Q4 (actual)
2019:Q1 (expected)

82
86

Rate of loan repayment
2018:Q4 (actual)
2019:Q1 (expected)

59
76

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 indexes use all responses from the 2018:Q4 survey.

Table 5
Interest Rates (%)
2018:Q4

2018:Q3

Change

Operating
Fixed
Variable

6.08
5.91

5.86
5.60

0.22
0.31

Machinery/
intermediate-term
Fixed
Variable

6.23
6.06

6.03
5.70

0.19
0.36

Farm real estate
Fixed
Variable

6.13
5.91

5.92
5.65

0.20
0.26

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.

index of 123). A similar percentage of bankers expect loan
demand to increase in the first quarter of 2019 as farmers
gear-up for the spring planting season. By contrast, proportionately more bankers reported declines in the availability of funds and in the rate of loan repayment in the
fourth quarter. A slightly larger percentage of bankers—
though still a minority—expect repayment rates to increase
in the first quarter of 2019. By and large, banker expectations for the availability of funds in the first quarter are

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

2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019
Q1
Q2
Q3 Q4
Q1
Q2
Q3
Q1 Q2
Q3
Q4 Q1
Q2
Q4
Q3
Q4
Q1

Figure 4
Household Spending: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
130

Actual

120

Expected

110
100
90
80
70
60
50
40

2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019
Q1
Q2
Q3 Q4
Q1
Q2
Q3
Q1 Q2
Q3
Q4 Q1
Q2
Q4
Q3
Q4
Q1

Figure 5
Capital Spending: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
130
Actual

Expected

110
90
70
50
30
10

2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019
Q1
Q2
Q3 Q4
Q1
Q2
Q3
Q1 Q2
Q3
Q4 Q1
Q2
Q4
Q3
Q4
Q1

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 indexes in 2019:Q1 are calculated
using only the responses from the 2018:Q4 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

2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019
Q1
Q2
Q3 Q4
Q1
Q2
Q3 Q4
Q1
Q3
Q4
Q1
Q2
Q2
Q3
Q4 Q1

Figure 7
Availability of Funds: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
120

Actual

115

Expected

110
105
100
95
90
85
80
75

2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019
Q1
Q2
Q3 Q4
Q1
Q2
Q3 Q4
Q1
Q3
Q4
Q1
Q2
Q2
Q3
Q4 Q1

Figure 8
Rate of Loan Repayment: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
120
110
100
90
80
70
60
Actual
50

Expected

2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019
Q1
Q2
Q3 Q4
Q1
Q2
Q3 Q4
Q1
Q3
Q4
Q1
Q2
Q2
Q3
Q4 Q1

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 indexes in 2019:Q1 are calculated
using only the responses from the 2018:Q4 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.

AGRICULTURAL Finance Monitor
not much different from those that prevailed in the fourth
quarter. [As noted in previous surveys, the actual index
values for fourth-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 fourth-quarter 2018
survey, instead of a common sample between the current
and previous surveys.]
Table 5 shows average interest rates on a variety of fixedand variable-rate loan types in the third and fourth quarters
of 2018. Compared with the previous quarter, interest
rates increased across all listed loan types in the fourth
quarter. Interest rates increased the most for variable-rate
machinery/intermediate-term loans (36 basis points),
while rates increased the least for fixed-rate machinery/
intermediate-term loans (19 basis points). Across all categories, fixed-rate loans increased by an average of about
20 basis points in the fourth quarter, while variable-rate
loans increased by an average of 31 basis points.

Special Questions
Table 6 reports the results of three special questions
posed to our agricultural bankers. The first question
asked the bankers to assess the health of the rural economy
in their region. Roughly two-thirds of bankers (64 percent)
believe that the economy in their region could be characterized as fair, with another 32 percent rating the local
economy as good. No banker reported exceptional economic conditions in his area, and only 5 percent characterized economic conditions as extremely poor. This
question was asked of bankers in late 2017 (four quarters
earlier). In that survey, 35 percent reported that the local
economy was in good shape, 39 percent reported that it
was in fair shape, and about a quarter (26 percent) reported that it was in poor shape. On net, then, the health of
the rural economy has improved modestly over the past
year according to agricultural bankers.
The second special question asked the bankers about
their region’s economic outlook for 2019. Two-thirds of
the respondents expect economic conditions in their area
to stay the same, while one-third expect economic conditions to worsen this year. No banker expected improving
economic conditions in 2019 in his region.
The third special question asked our agricultural bankers
their expectations for farmland returns in 2019. Nearly all
of the respondents (91 percent) expect farmland returns
to landowners in their area to be greater than 0 percent
but less than 5 percent. The remaining 9 percent expect

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Table 6
Special Questions
How would you characterize the health of the rural economy
(i.e., “Main Street”) in your region?
Extremely poor
Fair
Good
Exceptional

Percent of respondents
5
64
32
0

In 2019, I expect economic conditions in my area to
Worsen
Remain the same
Improve

Percent of respondents
33
67
0

Do you expect the return on farmland in your area for landowners in 2019 (rents less expenses divided by market value
of land) will be
Greater than 10%
Greater than 5% but less than 10%
Greater than 0% but less than 5%
Negative (less than 0%)

Percent of respondents
0
9
91
0

farmland returns in their area to be greater than 5 percent
but less than 10 percent in 2019. This same question was
posed to bankers in the fourth quarters of 2017 and 2015.
The current quarter’s results are exactly the same as a year
earlier. However, three years earlier, in 2015, 13 percent
expected farmland returns to be greater than 5 percent
but less than 10 percent; 77 percent expected farmland
returns to be greater than 0 percent but less than 5 percent;
and 10 percent expected farmland returns to be negative
in 2016. On balance, then, bankers have increasingly come
to expect low, single-digit farmland returns. n
[Editor’s Note: Due to low and declining response rates,
the Federal Reserve Bank of St. Louis is evaluating the
viability of the Agricultural Finance Monitor.]

AGRICULTURAL Finance Monitor

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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 December 31, 2018,
there were 225 banks in the Eighth Federal Reserve District that met this criteria.

IL

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.

Columbia
Jefferson City

St. Louis
Evansville

MISSOURI

Owensboro
Springfield

Louisville-Jefferson County
Elizabethtown

Bowling Green

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;
Kathryn Bokun, 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 14, 2019
© 2019, Federal Reserve Bank of St. Louis. Views expressed do not necessarily reflect official positions of the Federal Reserve System.

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