Full text of Agricultural Highlights : August 1987

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DALLAS
Federal Reserve Bank of Dallas

August 1987

District Cropland Values Closing in on the Bottom
Though s t ill fa llin g , average
cropland values in the Eleventh District
may be approaching the bottom of the
market. In a few heavily agricultural
regions of West Texas, cropland value
estimates have actually stabilized. Any
recovery in cropland prices, however,
will be contingent upon continued
heavy government income support for
farmers and a revival of the moribund
District economy.

1981. But in the more urbanized areas,
the weakening agricultural demand for
land was offset by the growing region
al economy. In 1987, however, even
though expectations about domestic
and export farm markets are relatively
unchanged, agricultural demand for
land has probably increased because
of the massive infusion of government
money into the sector as a result of the
1985 Farm Bill. Starting in 1986, Texas

farmers will likely receive in excess of
$1 billion per year in government
payments for the foreseeable future.
Consequently, in a heavily agricultural
area of Texas roughly around and be
tween Lubbock and Abilene, July
survey results indicate that the
cropland market has stabilized. In con
trast, nonagricultural demand for
cropland has probably dropped off
(Continued on back page)

Demand Drives Cropland Markets

In recent years, the demand side has
been more important than the supply
side in determining cropland values.
The demand for cropland is the ag
gregation of demand for land to be
used in agriculture and demand for
land for nonfarm uses by those outside
of agriculture, such as real estate
developers. Agricultural demand for
land is a function of expectations
about domestic and export markets
and the level of government support,
while nonagricultural demand is large
ly dependent on the state of the
regional economy. In some regions of
the District, such as Central Texas,
agricultural land values are supported
by nonagricultural demand for land. In
other areas, such as West Texas, agri
cultural demand alone supports land
values.
Cropland Values Stabilized
in Some Areas

The current District cropland value
situation seems to be a near reversal of
what existed in the early 1980s. Land
values in heavily agricultural areas of
the District started down as early as

Texas Agricultural Counties
Experience Declines in Recent Years
The farm financial crisis, which
began in the early 1980s, has reduced
cash flow and income to the nation’s
farmers, forcing many out of business.
The decline in farm and ranch income
has had a significant impact on some
rural communities. An analysis of the
top 50 agricultural counties in Texas
reveals that despite performing fairly
well during 1980-84, these counties
have experienced significant economic
declines since 1985.
Employment Grew Moderately
before 1985

An agricultural county can be de
fined as one of the top 50 counties
ranked by share of total personal in
come attributed to agriculture. By this
definition, employment for Texas agri
cultural counties followed a pattern
similar to the state’s during 1980-84
(see Chart 1). While a slowdown oc
curred between the second quarter of
1982 and the second quarter of 1983,
total employment grew at an annu-

alized average rate of 1.25 percent for
agricultural counties and 2.13 percent
for the state overall. Employment
growth in the agricultural counties,
however, was not evenly distributed. It
was negative in 7 counties and positive
in 14, with essentially no growth occur
ring in 27.
Number of Businesses Increased

Another measure of the economic
welfare of regions is net new business
formation. Like employment, net new
business formation showed positive
yet slower growth for the agricultural
counties than for the state as a whole.
The number of businesses in agricul
tural counties grew 23.2 percent during
1980-84 (see Chart 2) and 56.2 percent
for the entire state.
Recent Declines Reported

Employment and the number of
businesses in Texas agricultural coun
ties began to decline in 1985. With the
(Continued on back page)

Chart 2
NUMBER OF BUSINESS
ESTABLISHMENTS IN TEXAS

Chart 1
TEXAS EMPLOYMENT
i— 120 INDEX, 1980:Q1 = 100-

SEASONALLY ADJUSTED

SOURCES: Bureau of Labor Statistics.
Texas Employment Commission.
Federal Reserve Bank of Dallas.

180 INDEX, 1979 = 100 ---------------------------------------------------■ AGRICULTURAL COUNTIES
55 TOTAL

SOURCE: Texas Comptroller of Public Accounts.

SELECTED INDICATORS OF THE TEXAS AGRICULTURAL ECONOMY
TEXAS FARM REAL ESTATE VALUES
840 DOLLARS PER A C R E-------------- --------------------------------------------(THREE-QUARTER CENTERED MOVING AVERAGE)

SOURCE: Quarterly Survey of Agricultural Credit Conditions,
Federal Reserve Bank of Dallas.

TEXAS CASH RECEIPTS
FROM LIVESTOCK AND CROPS

PRICES RECEIVED/PRICES PAID
r-

90 (1977 = 100)--------------------------------------

NOTE: Index is constructed by dividing prices received by farmers in Texas by prices
paid by farmers nationwide. (No separate series exists for prices paid in Texas.)
SOURCES: U.S. Department of Agriculture.
Federal Reserve Bank of Dallas.

FARM DEBT OUTSTANDING AT TEXAS BANKS
I—

4.0 BILLION DO LLARS---------------------------------------------------------------

3.9

—

3.8

—

3.7

3.6

35 |

1985

1986

1987

SOURCE: Board of Governors, Federal Reserve System.

INTEREST RATES ON TEXAS FARM LOANS

NOTE: PCA rate is for farm operating loans at production credit associations.
FLB rate is for farm real estate loans at the Federal Land Bank.
SOURCES: Farm Credit Banks of Texas.
Quarterly Survey of Agricultural Credit Conditions,
Federal Reserve Bank of Dallas.

NONPERFORMING LOANS
AT AGRICULTURAL BANKS

NOTE: Nonperforming loans consist of loans past due 90 days or more and
still accruing plus nonaccrual loans.
SOURCES: Board of Governors, Federal Reserve System.
Federal Reserve Bank of Dallas.

AGRICULTURAL BRIEFS
• The decline in District farm and ranch land
values has stopped in some of the heavily
agricultural regions, but District-wide average
land values are still falling (see front-page arti
cle). In an area around Lubbock, however, drycropland values have not only bottomed out but
have turned up slightly. For example, dryland
values there were $263 per acre in the January 1
and April 1 surveys but have risen to $269 per
acre as of July 1. District average cropland
values continued to fall in July, down about 1
percent from the April estimate.
• Survey results show that the mix of local
farmers/ranchers and outside investors buying
land today is similar to the mix seven years ago
when the agricultural land market was boom
ing. This indicates that not all agriculturalists
have been squeezed out of the land market
because of financial stress. In the past two
years, government farm programs for farmers
and the renewed profitability of livestock opera
tions have increased the sector’s liquidity. In
1980, 54 percent of the District land buyers
were tenants or owner-operators. In July 1987,

bankers estimated that 52 percent of the pur
chasers were farmers and ranchers.
• During the first six months of 1987, District
bankers’ expectations of business failure
because of financial stress among their farm
and ranch customers declined markedly. On
January 1, 1987, survey respondents estimated
that an average of 4.9 percent of their
customers would leave agriculture in 1987
because of financial stress. By July 1, bankers
expected only 3.3 percent of their agricultural
borrowers to succumb to financial stress dur
ing all of 1987. The cumulative effect of fairly
steady commodity markets and continued
strong government support for farmers has
helped keep agricultural borrowers in business.
• Many District cotton farmers in the Southern
High Plains of West Texas are more dependent
upon the weather than usual. Over a million
acres there is planted to “ June cotton’’
because of weather-induced replanting.
Because June cotton needs warm September
weather to do well, both the farmers and their
lenders have their fingers crossed.

TEXAS COMMODITY MARKET PRICES
UPLAND COTTON
r-

ALL WHEAT

60 CENTS PER POUND

SOURCE: U.S. Department of Agriculture.

SLAUGHTER STEERS

FEEDER STEERS

|—

75 DOLLARS PER HUNDREDWEIGHT-----

r—

84 DOLLARS PER HUNDREDWEIGHT -

GRAIN SORGHUM
r-

5.4 DOLLARS PER HUNDREDWEIGHT-----

L-

2.4

1J, 1Fr: 1M A» IM-,1
J ,1 J

A S O N D

SOURCE: U.S. Department of Agriculture.

CORN
r-

4.0 DOLLARS PER BUSHEL-

I—

1.5

1 9 8 7 ^ '^

1987

' J| IF(- IM■«IA* M
I *■JI , I J, IAa 1Se 1
1n 1
OrJNmD
SOURCES: Texas Department of Agriculture.
Federal Reserve Bank of Dallas.

SOURCES: Texas Department of Agriculture.
Federal Reserve Bank of Dallas.

I J1l rF lM11IAJ M11lJ , I J

T -r-T -n n

A S O N D

SOURCE: U.S. Department of Agriculture.

Cropland Values (cont.)

Counties Decline (cont.)

considerably since 1984, when District
employment numbers and other signs
of a vigorous economy began to
nosedive. In Central Texas, for exam
ple, which is more urbanized and sup
ports land values above agriculturaluse value, cropland values are still
declining, hostage to an enervated
economy.

1986 slowdown in the state’s economy,
the decline in agricultural counties ac
celerated. In 1985, the number of
businesses in agricultural counties fell
3.2 percent, followed by a decline of 9.9
percent in 1986. Employment in agri
cultural counties also declined 2.9 per
cent in 1985 and 4.8 percent in 1986.
The economic condition of the cen
tral business district of an area is
another measure of the area’s overall
economic welfare. In a county heavily
dependent on agriculture, any decline
in that industry should be reflected in
the county’s retail trade. Employment
and net new business formation for the
retail sector both showed that the
business districts of the agricultural
counties as a whole experienced slow
but positive growth during 1980-84. In
1985 the number of retail businesses
declined in the agricultural counties
while retail employment continued to

Conclusion

For average District cropland values
to stabilize, not only must the
agricultural outlook remain relatively
prosperous, but the regional economy
must begin to grow more vigorously. A
recent survey of Eleventh District bank
lenders to agriculture shows that only
58 percent believe the land market has
bottomed out. Average land values for
most types of agricultural land are still
declining.
—Hilary H. Smith

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grow. Both measures, however, de
clined in 1986.
Conclusion

Although Texas agriculture has been
generally depressed in the 1980s, the
agricultural counties in Texas experi
enced some growth overall during the
1980-84 period. However, the downturn
that began in 1985 accelerated with the
1986 weakness in the state’s economy.
Because of rising government pay
ments, however, the net cash income
of Texas farmers increased signifi
cantly in 1986 and will likely rise again
in 1987. With the expected gradual im
provement in the Texas economy in
1987 and the increased net cash in
come to farmers, the employment
declines seen in agricultural counties
in 1986 will probably be smaller in
1987.
—Keith R. Phillips

Full text of Agricultural Highlights : August 1987

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