View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

2018 n Third Quarter

AGRICULTURAL Finance Monitor

Selected Quotes from
Banker Respondents Across the
Eighth Federal Reserve District
It could be a disastrous 2019 if commodity
prices don’t rebound! (Arkansas)
Government payments are far too delayed
to positively impact farmers in the current
crop cycle. Current market prices do not
allow producers to invest in efficiency
improvements and preserve natural
resources. Federal crop insurance deadlines do not allow agents to adequately
inform customers of details and changes
from the time of the announcement to
the program deadline. In response, insured
coverage is often too expensive to justify.
(Arkansas)
We expect some expansion in the poultry
industry going into 2019. Stocker cattle
prices are holding firm, although
breeding-age cattle prices have declined
some. (Arkansas)
I expect no change in the marketing plans
because they have bills to pay and will
need to sell the crop to make those payments. Small farmers are hurting because
of the low prices and are usually the ones
who do not have on-farm storage to allow
them to hold their harvested crops.
(Missouri)
Drought is of great concern, as low yields
will be compounded by less bushels to
claim for the market-support program
implemented to offset tariffs. (Missouri)
Low commodity prices looking forward;
extremely higher equipment purchase
prices and increasing repair expenses
due to the necessity of hiring professional
mechanics as a result of increased
sophistication of equipment. (Tennessee)
NOTE: These are generally verbatim quotes, but
some were lightly edited to improve readability.

The twenty-sixth quarterly survey of agricultural credit conditions was
conducted by the Federal Reserve Bank of St. Louis from September 15, 2018,
through September 30, 2018. The results presented here are based on the
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
This quarter’s survey assessed the economic and financial conditions in
the District’s agricultural industry in the third quarter of 2018. For the nineteenth consecutive quarter, a majority of agricultural bankers in the Eighth
Federal Reserve District reported that farm income had declined compared
with a year earlier. Bankers also reported that farm household spending and
capital expenditures remained below year-earlier levels in the third quarter.
Moreover, the number of bankers reporting third-quarter declines in these
key indicators was larger than three months earlier. A slightly larger percentage of respondents reported that they expect farm income and expenditures
to decline again in the fourth quarter relative to a year earlier. Values of quality
farmland and ranchland or pastureland rose modestly in the third quarter
from a year earlier, as did cash rents. Interest rates on three of the six fixedand variable-rate loan categories rose slightly in the third quarter. There were
three special questions in this quarter’s survey. In the first question, which
asked bankers to choose their highest concern, a little more than three-quarters
of respondents reported that continued low commodity prices is their largest
concern. The second special question asked agricultural bankers about loan
repayment problems over the second half of 2018. Nearly three-quarters of
bankers responded that they expect operating lines of credit to have the largest
repayment problems. Finally, the third special question asked bankers whether
soybean producers in their area will delay selling all or part of this year’s or
next year’s crops in response to the sharp decline in soybean prices. A little
more than half of bankers responded in the affirmative, while a little less than
half of bankers reported their belief that there will be no change in farmers’
marketing plans for this year’s soybean crop.

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 45 in the third quarter of 2018. The thirdquarter index was the lowest in two years and marks the nineteenth consecu­
tive quarter with a value below 100. [NOTE: An index value below 100 indiFederal Reserve Bank of St. Louis | research.stlouisfed.org

AGRICULTURAL Finance Monitor

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

2

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 third 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:Q3 (actual)
2018:Q4 (expected)

45
41

Household spending
2018:Q3 (actual)
2018:Q4 (expected)

68
50

Capital spending
2018:Q3 (actual)
2018:Q4 (expected)

36
36

NOTE: Actual and expected values for the indexes use all responses from
the 2018:Q3 survey.

cates that a larger percentage of bankers reported decreases
in farm income relative to a year earlier than increases in
farm income.] Overall, bankers were slightly less optimistic
when asked about the prospects for farm income in the
fourth quarter of 2018 (a diffusion index value of 41). Pro­
portionately more bankers also reported that household
spending and capital expenditures in the third quarter were
lower than a year earlier. As indicated by the diffusion index
relative to its third quarter value, a majority of bankers
expect household spending and capital expenditures to
also decline in the fourth quarter from a year earlier. The
diffusion indexes for farm income, household income, and
capital expenditures are reported in Figures 3 to 5. 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 third-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

2.5%
95
1.5%
89

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

2.0%
77
0.8%
100

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:Q3 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 changes in current-quarter
land values and cash rents, as well as banker expectations
for land values and cash rents over the fourth quarter.
Quality farmland values rose 2.5 percent in the third quarter from a year earlier, after falling by a little more than 3
percent in the second quarter. Ranchland or pastureland
values also increased in the third quarter, but by modestly
less (1.5 percent). Proportionately more bankers expect
quality farmland values and ranchland or pastureland values
to decline over the next three months (index values of 95
and 89, respectively). Cash rents for quality farmland rose
2 percent in the third quarter, while cash rents for ranch-

AGRICULTURAL Finance Monitor

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

3

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

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

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

land or pastureland rose 0.8 percent. Proportionately more
bankers expect that cash rents for quality farmland will
decline over the next three months (index value of 77).
However, bankers are split on whether cash rents for ranchland and pastureland will decrease or increase over the
next three months, yielding a diffusion index value of 100.
See Figures 1 and 2 for a historical perspective of land values and cash rents.

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 third 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 second- and third-­
quarter surveys.] Overall, compared with their expectations
from three months earlier, proportionately more bankers

AGRICULTURAL Finance Monitor

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

Table 3

Table 4

2018:Q3 Variables (versus year-ago levels)

Lending Conditions (versus year-ago levels)

Index value
Farm income
Expected
Actual
Difference

67
39
–28

Household spending
Expected
Actual
Difference

83
67
–17

Capital spending
Expected
Actual
Difference

72
33
–39

Demand for loans
Expected
Actual
Difference

93
107
13

Availability of funds
Expected
Actual
Difference

94
81
–13

Rate of loan repayment
Expected
Actual
Difference

75
88
13

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, household spending, and capital spending declined in the third quarter from a year
earlier (as noted by the negative difference between the
expected and actual values). In terms of financial indicators,
proportionately more bankers reported that the demand
for loans in the third quarter rose more than had been
expected three months earlier, as did the rate of repayment.
However, a smaller percentage of bankers reported increases
in the availability of funds from a year earlier than had been
expected three months earlier. On balance, these findings
are consistent with the view that economic conditions in
the agricultural sector deteriorated in the third quarter by
more than initially expected.

4

Index value
Demand for loans
2018:Q3 (actual)
2018:Q4 (expected)

117
114

Availability of funds
2018:Q3 (actual)
2018:Q4 (expected)

87
82

Rate of loan repayment
2018:Q3 (actual)
2018:Q4 (expected)

96
105

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:Q3 survey.

Table 5
Interest Rates (%)
2018:Q3

2018:Q2

Change

Operating
Fixed
Variable

6.02
5.76

5.91
5.66

0.11
0.09

Machinery/
intermediate-term
Fixed
Variable

6.17
5.87

6.21
5.84

–0.04
0.03

Farm real estate
Fixed
Variable

5.98
5.67

5.98
5.70

0.00
–0.03

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.

Financial Conditions
Table 4 reports the District bankers’ assessment of
current and prospective lending conditions in the third
quarter of 2018 compared with four quarters earlier. Pro­
portionately more bankers reported an increase in loan
demand from a year earlier (diffusion index of 117), which,
consistent with previous surveys, may reflect increased
funding needs stemming from the multi-year strains on

AGRICULTURAL Finance Monitor

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

5

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

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

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

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

6

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

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

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

farm incomes. Looking forward, slightly fewer bankers—
but still a majority—expect an increase in the demand for
loans in the fourth quarter of 2018 (index value of 114).
Proportionately more bankers reported declines in the
availability of funds in the third quarter, with similar conditions expected to prevail in the fourth quarter. In the
third quarter, slightly more bankers reported a decline in
the rate of loan repayment in the third quarter, but proportionately more bankers expect repayment rates to increase
in the fourth quarter. [As noted in previous surveys, the
actual index values for the third quarter reported in Table 4
may differ from those reported in Table 3. The reason is
that Table 4 uses all responses from the third-quarter 2018
survey, instead of a common sample between the current
and previous surveys.]
Table 5 shows average interest rates on fixed- and
variable-rate loans in the third and the second quarters of
2018. Compared with the second-quarter averages, of six
loan products, the interest rates of three increased, two
decreased, and one remained unchanged. Interest rate
changes ranged from a decline of 4 basis points for fixedrate intermediate loans or loans to finance machinery
purchases, to an increase of 11 basis points for fixed-rate
operating loans.

Table 6
Special Questions
Regarding the agricultural sector, which of the following
issues are of highest concern to you at the present time?
(Please select only one.)
Percent of respondents
Continued low commodity prices
77.3
Potential impact of tariffs
13.6
Rising interest rates for borrowing
4.5
Increasing material input costs (e.g., fertilizer, fuel, etc.) 4.5

Which of the following loan categories do you expect will
have the largest increase in repayment problems over the
second half of 2018?
Operating lines of credit
Machinery and equipment
Real estate loans
No increase is expected

Percent of respondents
71.4
4.8
0.0
23.8

In response to foreign tariffs on U.S. agricultural products, do
you expect farmers in your area to alter their marketing plans
for this year’s or next year’s crops (i.e., altering the timing of
crop sales)?

Special Questions
Table 6 reports the results of three special questions
posed to our agricultural bankers. The first question asked
agricultural bankers which of the following four developments concerns them the most at the present time: (i) continued low commodity prices; (ii) the potential impact of
tariffs on agricultural products; (iii) rising interest rates;
or (iv) increasing material input costs. A sizable majority,
77.3 percent, reported that continued low commodity prices
is their largest concern. The potential impact of tariffs
received the second-most responses, but it was relatively
small (about 14 percent).
The second special question asked agricultural bankers
which types of loans they expect to experience repayment
problems over the second half of 2018. Nearly three-quarters
of respondents (71.4 percent) expect that the largest increase
in repayment problems will be for operating lines of credit.
A little less than a quarter of respondents (23.8 percent)
expect no repayment problems.
U.S. soybean prices have fallen sharply since the Chinese
government imposed tariffs on imports of U.S. soybeans
in late July. Some industry analysts have since speculated
that U.S. soybean producers would delay the marketing
(selling) of all or part of their crop in the hope of a rebound

7

Percent of respondents
Yes, sell earlier
4.5
Yes, sell later
54.5
No, I anticipate no change in farmers’ marketing plans 40.9

in prices. Thus, the third special question asked bankers
to assess the validity of this speculation. A little more than
half of respondents (54.5 percent) reported that soybean
producers in their area plan to delay selling all or part of
this year’s or next year’s crops, while a little less than half of
bankers (40.9 percent) believe that there will be no change
in farmers’ marketing plans for this year’s crop. 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 September 30, 2018,
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.

AGRICULTURAL Finance Monitor

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

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;
Matthew Famiglietti, 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 November 15, 2018
© 2018, Federal Reserve Bank of St. Louis. Views expressed do not necessarily reflect official positions of the Federal Reserve System.

8