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2018 n Second Quarter

AGRICULTURAL Finance Monitor

Selected Quotes from
Banker Respondents Across the
Eighth Federal Reserve District
Farm income in our region is not as
volatile as it is in row crop areas. We are
mostly contract poultry and animal production. Independent cattle producers
make up the balance of our agriculture
production; those prices are off the highs
but have stabilized. (Arkansas)
We have no demand for variable-rate
agricultural loans. (Arkansas)
Good quality farm real estate sales prices
continue to increase, although the number
of sales has slowed. (Illinois)
Lack of rain will reduce income from grain
sales in our area. Also, the price of hay is
increasing due to lack of rain, resulting
in lower yields from hay-production acres.
The outlook is gloomy if we do not
receive rain soon. (Missouri)
Demand for recreational/low-incomeproducing properties is increasing, as
St. Louis MSA residents become more
confident about their economy. (Missouri)
With the announcement of Tyson Foods
building a processing plant in our area,
we expect to finance some chickenproducing operations. While the process
is somewhat slow at the moment, we
are working toward booking the first
pullet operation. (Tennessee)
NOTE: These are generally verbatim quotes, but
some were lightly edited to improve readability.

The twenty-fifth quarterly survey of agricultural credit conditions was conducted by the Federal Reserve Bank of St. Louis from June 15, 2018, through
June 30, 2018. The results presented here are based on responses from 24 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
The results of this quarter’s survey reflect agricultural finance conditions
in the Eighth Federal Reserve District during the second quarter of 2018. For
the eighteenth consecutive quarter bankers who responded to the survey on
net reported a decline in farm income when compared with the same period
a year ago. Similar to the previous survey, the results of this survey reflect some
expectations of improving levels for farm income for the next quarter. While
a majority of bankers still expect income to decline next quarter when compared with the third quarter of last year, slightly fewer bankers report that
assessment. Bankers reported a similar assessment and outlook for capital
spending. Responses about household spending also indicate a decline in that
category when compared with responses a year ago. Bankers have reported
lower comparative income levels since the fourth quarter of 2013, reaching
a low point in the second quarter of 2016. This period correlates with an
extended period of depressed prices for commodities. Survey responses
indicate that the value of quality farm land fell during the second quarter of
2018 compared with a year ago but that cash rents for that property slightly
improved. In contrast, the value for ranchland or pastureland rose during
the second quarter while cash rents for that property fell. Responses to bankrelated activities indicated that loan demand and available funds increased
during the second quarter of 2018 as compared with a year ago. The rate of
loan repayment slowed during the second quarter of 2018 on a comparative
basis as reported by a majority of bankers. Both fixed and variable interest
rates on all categories of loans rose during the quarter, relative to the previous
quarter. This quarter’s survey asked two special questions. Results of the
first question indicate that a significant majority of respondents feel that the
University of Missouri’s projections that farm income will fall in 2018 by
about 6.5 percent is about right. The second question asked about the impact
lenders expected the new tax law will have on borrowers: Over 71 percent
felt it would be either somewhat positive or significantly positive, while only
29 percent felt there would be either no effect or a somewhat negative effect.

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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 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:Q2 (actual)
2018:Q3 (expected)

58
65

Household spending
2018:Q2 (actual)
2018:Q3 (expected)

88
87

Capital spending
2018:Q2 (actual)
2018:Q3 (expected)

67
70

NOTE: Actual and expected values for the indexes use all responses from
the 2018: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 58
and marks the eighteenth 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
index value for the second quarter is worse that the value
of 67 reported for the first quarter of 2018. When asked
about expectations for farm income for the third quarter,
responses yielded a diffusion value of 65. While this indicates that a majority of bankers still feel farm income will
decline in the third quarter of 2018 compared with the same
period last year, the percentage of bankers who feel that
way is slightly lower. Levels of household spending and
capital spending are both tied closely to farm income and,

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

–3.5%
95
1.6%
95

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

0.4%
95
–9.0%
94

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

not surprisingly, reflect that most bankers project a similar
outlook for next quarter (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
Table 2 shows year-to-year percentage changes in land
values and cash rents in the second quarter, as well as
bankers’ expectations for the next quarter. Quality farmland
values decreased by 3.5 percent compared with a year ago,
while cash rents increased by 0.4 percent relative to a year
ago. In contrast, ranchland or pastureland values increased
1.6 percent in the second quarter compared with a year

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Figure 1
Year-Over-Year Change in Average Eighth District Land Values
Percent Change
18
15
12
9
6
3
0
–3
Quality Farmland
Ranchland or Pastureland

–6
–9

2016:Q1

2016:Q2

2016:Q3

2016:Q4

2017:Q1

2017:Q2

2017:Q3

2017:Q4

2018:Q1

2018: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
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

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

ago, while cash rents for that category of property declined
9 percent. The drop in cash rents for ranchland or pastureland was the largest percentage drop recorded since the
fourth quarter of 2016. As shown in the index values in
Table 2, proportionately more bankers expect in the next
three months that quality farmland values and rents will
be less than they were relative to a year ago. The same expectation also holds for ranchland or pastureland values and
rents.

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 2018, as well as the expected values
for the second quarter that bankers reported in the firstquarter survey of 2018. [NOTE: For Table 3, we compute
diffusion indexes using only those banks that responded
to the 2018 first-quarter survey and the current survey.]
As seen by the smaller actual diffusion indexes (relative
to the expected indexes), a larger proportion of bankers

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Table 3

Table 4

2018:Q2 Variables (versus year-ago levels)

Lending Conditions (versus year-ago levels)

Index value
Farm income
Expected
Actual
Difference
Household spending
Expected
Actual
Difference

85
50
–35
90
85
–5

Capital spending
Expected
Actual
Difference

80
55
–25

Demand for loans
Expected
Actual
Difference

112
118
6

Availability of funds
Expected
Actual
Difference

100
106
6

Rate of loan repayment
Expected
Actual
Difference

88
88
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.

reported that farm income declined in the second quarter
than the proportion that were expecting a decline. Further
more, a larger proportion of bankers reported a decline in
capital spending than what was expected three months
earlier. The proportion of bankers actually reporting a
decline in household spending for the second quarter was
also modestly more than had been expected. Proportion
ately more bankers reported that the actual demand for
loans during the second quarter of 2018 was greater than
had been expected three months earlier, and additionally
they also reported a greater availability of funds. These
developments appeared to make no difference in the rate
of loan repayment: The proportion of bankers who felt
that the actual rates of loan repayments had declined was

Index value
Demand for loans
2018:Q2 (actual)
2018:Q3 (expected)

126
105

Availability of funds
2018:Q2 (actual)
2018:Q3 (expected)

109
100

Rate of loan repayment
2018:Q2 (actual)
2018:Q3 (expected)

87
81

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:Q2 survey.

Table 5
Interest Rates (%)
2018:Q2

2018:Q1

Change

Operating
Fixed
Variable

5.94
5.54

5.88
5.32

0.07
0.23

Machinery/
intermediate-term
Fixed
Variable

6.00
5.70

5.83
5.48

0.17
0.23

Farm real estate
Fixed
Variable

5.81
5.53

5.52
5.27

0.29
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.

equal to the proportion expecting lower repayment rates
(that is, the actual and expected diffusion indexes were the
same).

Financial Conditions
Table 4 reports our survey respondents’ assessment of
bank lending conditions in the Eighth District in the second
quarter of 2018 alongside expectations for the third quarter.

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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
Q1 Q2
Q3 Q4
Q1 Q2
Q3
Q3 Q4
Q1 Q2
Q4 Q1
Q2
Q3

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

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

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

Actual

Expected

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

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 2018:Q3 are calculated
using only the responses from the 2018:Q2 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
Q1 Q2
Q3 Q4
Q1 Q2
Q3
Q3 Q4
Q1 Q2
Q4 Q1
Q2
Q3

Figure 7
Availability of Funds: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
120
115

Actual

Expected

110
105
100
95
90
85
80

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

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

Actual

Expected

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

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As noted in previous surveys, the actual index values for
the second quarter 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 2018 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 for the
third quarter of 2018 are less optimistic compared with
actual results recorded for the second quarter. 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 of 105), while
bankers are evenly split regarding their expectations for
availability of funds. Proportionately more bankers reported
a decline in the rate of loan repayment in the second quarter (an index value of 87). The rate of loan repayment is
expected to worsen slightly in the third quarter (an index
value of 81).
Table 5 presents average interest rates on fixed- and
variable-rate loan products in the second quarter of 2018
and the first quarter of 2018. Interest rates were higher in
the second quarter for all categories. Fixed-rate real estate
loans demonstrated the highest increase of 29 basis points
while fixed-rate operating loans increased the least of the
categories with an increase of only 7 basis points.

Table 6
Special Questions
According to the latest baseline projections (March 2018)
published by the Food and Agricultural Policy Research
Institute at the University of Missouri–Columbia, U.S. net
farm income (in 2017 dollars) is projected to fall by about
6.5 percent in 2018 to about $60 billion. In your view, is
FAPRI’s baseline farm income projection:
About right
Too optimistic
Too pessimistic

Percent of respondents
79
8
13

The “Tax Cuts and Jobs Act” (Public Law 115-97) was enacted
in December 2017. How much of an impact do you expect
the new tax law will have on your agricultural borrowers?
Significantly positive
Somewhat positive
No effect
Somewhat negative
Significantly negative

Percent of respondents
8
63
25
4
0

Special Questions
Table 6 reports the results of two special questions
posed to our agricultural bankers. The first question asked
bankers about the farm income projections issued in March
2018 by the University of Missouri’s Food and Agricultural
Policy Research Institute, which indicated a decline of about
6.5 percent in farm income for the year. A significant majority (79 percent of respondents to the survey) felt the projection was about right. The balance was basically split, with
slightly more feeling the projection was too pessimistic
than those who felt the projection was too optimistic.
The second special question asked bankers about the
impact they expected the Tax Cuts and Jobs Act that was
enacted in December 2017 would have on their borrowers.
A significant number, 71 percent, indicated they expected
the new law would have a somewhat positive or significantly
positive impact on their borrowers; 25 percent felt the

new law would have no effect on their borrowers, while
only 4 percent felt the impact would be negative. n

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 June 30, 2018,
there were 230 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.

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IL
Columbia
Jefferson City

St. Louis
Evansville

MISSOURI

Louisville-Jefferson County
Elizabethtown

Owensboro
Springfield

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;
Brian Levine, 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 August 9, 2018
© 2018, 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 : 2018 Second Quarter

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