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2019 n First Quarter

AGRICULTURAL Finance Monitor

Selected Quotes from
Banker Respondents Across the
Eighth Federal Reserve District
Farmers are running out of capital. Commodity
prices are too low for input costs and rents/
land payments. (Arkansas)
Agriculture loan demand in our region is
driven by the poultry industry, either by
expansion or replacement of outdated facilities, and presently that loan demand is at a
slower pace. (Arkansas)
What we are faced with is a commodity market
that will not provide enough margin to service
the prices that the producers have to pay for
inputs such as seed and fertilizer and chemicals. I think this is tied to the trade deal, but
am not sure. In 2005, soybeans were $5.50
per bushel and people grew them. Now they
are $8.90 per bushel and you cannot afford
to make less than 60 bushels per acre to
break even. (Arkansas)
The most significant development is the
reduction in commodity prices that has
resulted in farmers holding their grain in
anticipation of a future price recovery that I
don’t expect to happen. Holding the grain on
the farm will result in a decrease in quality
that will result in even lower end prices when
they do finally sell the commodities. (Illinois)
Because of the hard winter weather, ranchers
are experiencing a higher rate of death in
newborn calves. Fewer calves mean less
income for the rancher. That means he will
be making due with what he has rather than
purchasing new equipment, land, or personal
items. (Missouri)
Weather continues to be the greatest risk.
With the size of today’s operations, poor
growing conditions could result in losses of
$250,000 or more even with crop insurance.
Good weather conditions can result in profits
exceeding $250,000. Land prices show no
signs of weakening. (Missouri)
NOTE: These are generally verbatim quotes, but
some were lightly edited to improve readability.

The twenty-eighth quarterly survey of agricultural credit conditions was
conducted by the Federal Reserve Bank of St. Louis from March 15, 2019,
through March 31, 2019. The results presented here are based on the responses
from 26 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 asked Eighth District agricultural bankers about
financial conditions in the first quarter of 2019. For the twenty-first consecutive quarter, a majority of agricultural bankers in the Eighth Federal Reserve
District reported that farm income had declined compared with the same
quarter a year earlier. However, some bankers expect farm income to improve
in the second quarter. Bankers reported some erosion in land values in the
first quarter, as quality farmland values declined 0.3 percent and ranchland
or pastureland values declined 3.3 percent from a year earlier. Cash rents for
quality farmland rose slightly in the first quarter, while cash rents for ranchland or pastureland fell appreciably. Proportionately more bankers reported
an increase in loan demand in the first quarter, but, on balance, bankers expect
no change in the demand for loans in the second quarter. On average, interest
rates increased modestly across the three major loan categories in the first
quarter compared with three months earlier. We posed two special questions
to our agricultural bankers for this survey. The first question asked the bankers
what percentage of their customers have borrowed up to their loan limit. The
results showed that 35 percent of bankers reported that less than one-fourth
of their customers had borrowed up to their loan limit, but 31 percent reported
that more than half of their customers had borrowed up to their loan limit.
The second special question asked the bankers to assess the most significant
risk to the farm sector in 2019. Perhaps not surprisingly, a little less than twothirds of the respondents indicated that an adverse trade outcome presents
the most significant risk to the farm sector this year. Rising interest rates
and declining land prices were generally not viewed as significant risks to
the farm sector in 2019.

Survey Results
Farm Income and Expenditures
This quarter’s survey revealed once again that proportionately more
agricultural bankers continue to report declines in farm income over the
first three months of 2019 relative to a year earlier. As seen in Table 1, the
diffusion index for farm income registered a value of 46 in the first quarter
of 2019, modestly higher than the previous quarter’s index value of 41. The
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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 first quarter of 2019. 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
2019:Q1 (actual)
2019:Q2 (expected)

46
64

Household spending
2019:Q1 (actual)
2019:Q2 (expected)

85
84

Capital spending
2019:Q1 (actual)
2019:Q2 (expected)

54
52

NOTE: Actual and expected values for the indexes use all responses from
the 2019:Q1 survey.

index value has been below 100 for 21 consecutive quarters.
[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 farm income.]
However, a few more bankers expect farm income to register improved growth in the second quarter, as noted by
a larger index value of 64. Relative to the previous report,
proportionately more bankers reported increases in household spending and business capital spending in the first
quarter; however, a majority still reported declines in the
first quarter from a year earlier (as seen by index values
below 100). Expected index values for the second quarter
of 2019 are little changed from the actual current-quarter
values. 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 first-quarter

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

–0.3%
96
–3.3%
100

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

1.5%
100
–8.0%
95

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 2019:Q1 survey.
Expected trends are presented as a diffusion index; see the note above
for details about interpreting diffusion indexes.

survey and thus can differ from the values reported in
Figures 3 to 5. [See note at the bottom of Figure 8.]

Current and Expected Land Values and Cash Rents
Bankers reported some decline in land values in the
first quarter. As seen in Table 2, quality farmland values
fell 0.3 percent in the first quarter from a year earlier, which
was a slight decline from the 3.4 percent increase registered
in the fourth quarter of 2018. Ranchland or pastureland
values also decreased in the first quarter, but by a modestly
larger amount, 3.3 percent. The decline in ranchland or
pastureland values in the first quarter was a sharp departure from the 6.5 percent gain registered in the fourth

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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

2018:Q4

2019: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

2016:Q1

2016:Q2

2016:Q3

2016:Q4

2017:Q1

2017:Q2

2017:Q3

2017:Q4

2018:Q1

2018:Q2

2018:Q3

2018:Q4

2019:Q1

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

quarter of 2018. As reflected in the diffusion index, bankers
expect little or no change in quality farmland values and
ranchland or pastureland values over the next three months
(index values of 96 and 100, respectively). Cash rents for
quality farmland rose 1.5 percent in the first quarter, following a 2.9 percent gain in the fourth quarter of 2018. By
contrast, cash rents for ranchland or pastureland fell 8
percent in the first quarter, after rising 1.3 percent in the
previous quarter. Expectations for cash rents over the next
three months (second quarter of 2019) are similar to those
expected for farmland and ranchland or pastureland values. 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 first quarter
of 2019 compared with the values that were reported three
months earlier. [NOTE: For Table 3, we compute diffusion
indexes using only those banks that responded to both the
2018 fourth-quarter and 2019 first-quarter surveys.] Com­
pared with the expectations in the fourth quarter of 2018,
the actual outcomes in the first quarter were weaker than
expected (a lower actual diffusion index relative to the
expected diffusion index) for capital spending, the demand

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Table 3

Table 4

2019:Q1 Variables (versus year-ago levels)

Lending Conditions (versus year-ago levels)

Index value
Farm income
Expected
Actual
Difference

50
56
6

Household spending
Expected
Actual
Difference

78
78
0

Capital spending
Expected
Actual
Difference

53
47
–6

Demand for loans
Expected
Actual
Difference

122.2
116.7
–5.6

Availability of funds
Expected
Actual
Difference

89
83
–6

Rate of loan repayment
Expected
Actual
Difference

82
82
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.

for loans, and the availability of funds. In contrast, slightly
more bankers reported increased farm income relative to
expectations, while there was no difference between the
actual and expected outcomes for household spending
and loan repayment. The diffusion indexes for demand
for loans, availability of funds, and rate of loan repayment
are reported in Figures 6 to 8, respectively.

Financial Conditions
Table 4 reports the District bankers’ assessment of
current and prospective lending conditions in the first
quarter of 2019 compared with four quarters earlier: Pro­
por­tionately more bankers reported an increase in loan
demand (diffusion index of 115). However, reflecting a

4

Index value
Demand for loans
2019:Q1 (actual)
2019:Q2 (expected)

115
100

Availability of funds
2019:Q1 (actual)
2019:Q2 (expected)

96
91

Rate of loan repayment
2019:Q1 (actual)
2019:Q2 (expected)

80
77

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 2019:Q1 survey.

Table 5
Interest Rates (%)
2019:Q1

2018:Q4

Change

Operating
Fixed
Variable

6.16
5.95

6.05
5.86

0.11
0.09

Machinery/
intermediate-term
Fixed
Variable

6.36
6.04

6.24
5.92

0.12
0.12

Farm real estate
Fixed
Variable

6.16
5.85

6.15
5.73

0.01
0.12

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.

diffusion index of 100, our survey revealed that bankers
expect no change in the demand for loans in the second
quarter. About an equal number of bankers reported an
increase or decrease in the availability of funds in the first
quarter (index value of 96). The index value for available
funds is expected to fall slightly in the second quarter, signifying a slight decline in the availability of funds. On net,
proportionately more bankers continue to report lower
rates of loan repayment, as the actual and expected diffu-

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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 2019 2019
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

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 2019
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

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 2019
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 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 2019:Q2 are calculated
using only the responses from the 2019: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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6

Figure 6
Demand for Loans: Expected and Actual Values
Diffusion Index, versus Year-Ago Levels
140
130
120
110
100
90
80
Actual
70

Expected

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

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 2019
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

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 2019 2019
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 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 2019:Q2 are calculated
using only the responses from the 2019: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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sion indexes for the first and second quarters, respectively,
are well below 100. [As noted in previous surveys, the
actual index values for the first quarter reported in Table 4
may differ from those reported in Table 3. The reason is
that Table 4 uses all responses from the first-­quarter 2019
survey, instead of a common sample between the current
and previous surveys.]
Table 5 shows average interest rates on three types of
loans—either fixed- or variable-rate: operating, machinery
and intermediate term, and farm real estate. Interest rates
increased across all listed loan types in the first quarter
compared with the fourth quarter of 2018. Interest rates
increased the most for fixed- and variable-rate machinery/
intermediate-term loans and variable-rate farm real estate
loans (12 basis points). The interest rate on fixed-rate farm
real estate loans was about unchanged, increasing 1 basis
point to 6.16 percent. Across all categories, fixed-rate loans
increased an average of 8 basis points in the first quarter,
while variable-rate loans increased an average of 11 basis
points.

7

Table 6
Special Questions
Approximately what percent of your customers have
borrowed up to their loan limit?
Percent of respondents
Less than one-fourth
35
More than one-fourth but less than one-third
23
More than one-third but less than half
12
More than half
31

What is the most significant risk to the farm sector in 2019?
Decline in land prices
Increase in interest rates
Increase in input prices
Adverse trade outcomes
Other

Percent of respondents
0
8
23
62
8

Special Questions
Table 6 reports the results of special questions posed
to our agricultural bankers. The first question asked the
bankers what percentage of their customers have borrowed up to their loan limit. Thirty-five percent of bankers
reported that less than one-fourth of their customers had
borrowed up to their loan limit. However, a slightly smaller
percentage of bankers (31 percent) reported that more than
half of their customers had borrowed up to their loan limit.
The second special question asked the bankers to assess
the most significant risk to the farm sector in 2019. Per­
haps not surprisingly, a clear majority—62 percent of the
respondents—indicated that an adverse trade outcome
presents the most significant risk to the farm sector this
year. A little less than a quarter of the bankers (23 percent),
by contrast, believe that an increase in input prices is the
most significant risk in 2019. Rising interest rates and
declining land prices are generally not seen as significant
risks to the farm sector in 2019. 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 March 31, 2019,
there were 219 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.

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 May 9, 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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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

8