Full text of Agricultural Survey : Fourth Quarter 2011

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Ag ri c u ltu ral

Surv ey

Quarterly Survey of Agricultural Credit Conditions in the Eleventh Federal Reserve District

Federal Reserve Bank of Dallas
Demand for Loans

Fourth Quarter 2011

Nearly half of respondents continue to report lower loan demand.
Index
50
40
30
20
10
0
–10
–20
–30
–40
–50

2001

2002

2003

2004

2005

2006 2007

2008 2009

2010

2011

Availability of Funds
The index rises to its highest level in recent past.
Index
50
40
30
20
10
0

Bankers responding to the fourth-quarter survey noted widespread impacts from severe drought conditions. Crop insurance was a major source of
income for many farmers in 2011. These insurance payments allowed some
borrowers to pay down loans earlier than usual. Many ranchers sold off portions of their herds due to lack of adequate forage and high supplemental
feeding costs.
Irrigated cropland values in the Eleventh District continued to rise, posting a 14 percent increase from the fourth quarter of last year. Dry cropland
values held fairly steady from last quarter, although they too are up from a
year ago, by about 6 percent. Ranchland values showed mixed movements
in 2011 but ended the year up 2 percent. Expectations for farmland values
were more optimistic this quarter than last; 16 percent of bankers anticipate
an upward trend in farmland values in the coming quarter, while 6 percent
anticipate declines.
Demand for agricultural loans remained subdued. More than a quarter
of bankers across the district reported an increase in loan repayment rates,
largely a result of incoming crop insurance payments for farmers. Related to
this, banks’ availability of funds remained on the rise, and fewer borrowers
were requesting loan renewals or extensions. Loan volumes declined across
the various lending types. Bankers’ comments suggested that drought remains
a main concern going into 2012.

–10
–20

Farm Lending Trends

–30
–40
–50

2001

2002

2003

2004

2005

2006 2007

2008 2009

2010

2011

What changes occurred in non-real-estate farm loans at your bank in the past
three months compared with a year earlier?
2011:Q4

Rate of Loan Repayment
Loan repayment rates rise, with more than one quarter of bankers
noting an increase.
Index

Demand for loans
Availability of funds
Rate of loan repayment
Loan renewals or extensions
Amount of collateral required

Index
–35.0
46.7
11.7
–8.1
12.4

Percent reporting
Greater
11.7
48.2
26.3
13.2
12.4

Same
41.6
50.4
59.1
65.4
87.6

2011:Q3
Less
46.7
1.5
14.6
21.3
0

Index
–36.2
32.4
9.5
–3.4
9.5

What changes occurred in the volume of farm loans made by your bank in the
past three months compared with a year earlier?

40
30
20

2011:Q4

10
0
–10
–20
–30
–40
–50

2001

2002

2003

2004

2005

2006 2007

2008 2009

2010

2011

Non-real-estate farm loans
Feeder cattle loans
Dairy loans
Crop storage loans
Operating loans
Farm machinery loans
Farm real estate loans

Index
–28.4
–27.1
–16.5
–19.1
–7.6
–30.5
–29.0

Percent reporting
Greater
11.2
9.3
1.0
1.0
24.2
6.9
6.9

Same
49.3
54.2
81.4
79.1
43.9
55.7
57.3

2011:Q3
Less
39.6
36.4
17.5
20.0
31.8
37.4
35.9

Index
–34.5
–29.9
–14.3
–11.8
–15.8
–33.3
–31.5

Survey responses are used to calculate an index for each item by subtracting the percentage of bankers reporting a decrease from the percentage reporting an increase.

Agricultural Survey is compiled from a survey of Eleventh District agricultural bankers. Data were collected Dec. 6–14, and 139 bankers responded to the survey.
This publication is prepared by the Federal Reserve Bank of Dallas and is available without charge by sending an email to pubsorder@dal.frb.org or by calling 214-922-5254.
It is available on the web at www.dallasfed.org.
For questions regarding information in the release, contact Emily Kerr, 214-922-6941.

Loan-to-Deposit Ratios at Survey Banks

Loan Renewals or Extensions
The index dips as numerous respondents note fewer requests for
renewals or extensions.

Average desired and actual ratios
Percent
75

Index

–10

Desired ratio

2010:Q4

–20

2011:Q2

2011:Q1

2011:Q4

2011:Q3

Distribution of Loan-to-Deposit Ratios

–30
–40
–50

Actual ratio

Banks reporting (percent)
2001

2002

2003

2004

2005

2006 2007

2008 2009

2010

2011

Amount of Collateral Required
A majority of bankers note no change in collateral requirements, while
12 percent note an increase.

2010

2011

Q4
18
16
20
19
28

Less than 41%
41% to 50%
51% to 60%
61% to 70%
More than 70%

Q1
28
15
15
20
22

Q2
21
18
14
22
24

Q3
24
18
12
23
23

Q4
29
19
17
15
20

Index

Interest Rates

50
40

Fixed

Average rate (percent)

2010

10
0
–10

Feeder cattle
Other farm operating
Intermediate term
Long-term farm real estate

–20
–30
–40
–50

2001

2002

2003

2004

2005

2006 2007

2008 2009

2010

2011

The index bounces back into positive territory, indicating an expectation
of higher farmland values over the next three months.
Index
50

Q1
6.83
6.95
6.94
6.70

Q2
6.77
6.83
6.96
6.76

Q3
6.71
6.87
6.83
6.60

Q4
6.54
6.71
6.69
6.41

6.05
6.23
6.20
5.96

6.08
6.28
6.19
5.91

6.06
6.24
6.30
6.06

6.11
6.20
6.23
5.92

6.00
6.09
6.14
5.83

Total Agricultural Loans*
Eleventh District agricultural loan volumes declined in the third quarter.

Millions of dollars (seasonally adjusted)

8,500

20
10

8,000

7,500

–10

7,000

–20

6,500

–30

6,000

–40
–50

Q4
6.89
7.00
6.95
6.73

Variable
Feeder cattle
Other farm operating
Intermediate term
Long-term farm real estate

Anticipated Trend in Farmland Values

2011

2001

2002

2003

2004

2005

2006 2007

2008 2009

2010

2011

5,500
5,000
4,500
4,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

*Not based on Agricultural Survey data. Data lagged by one quarter.
SOURCE: Federal Financial Institutions Examination Council, Reports of Condition and Income.

Agricultural Survey

Fourth Quarter 2011

Federal Reserve Bank of Dallas

2011

Rural Real Estate Values — Fourth Quarter 2011
Cropland—Dryland

Eleventh Federal Reserve District

Banks1

1
3
12
N E W

M E X I C O

District

L O U I S I A N A

T E X A S

1
2
3
4
5
6
7
8
9
10
11
12
13

2005 dollars per acre per year

100
Irrigated

90
80
70
60
50
40

Dryland

30
20

Ranchland

10
0
2003

Previous
quarter

Previous
year

0.3

5.7

98
14
9
6
8
9
14
6
17
5
n.a.
9
3
8

1,422
598
542
708
813
1,311
2,121
2,100
2,944
1,810
n.a.
1,258
358
1,619

0.2
6.1
4.1
–4.0
2.8
–4.9
–4.7
0.0
5.0
4.3
n.a.
–0.4
2.3
0.0

6.0
9.1
10.7
–6.5
17.9
4.2
6.6
–1.1
6.0
26.8
n.a.
5.8
–28.8
8.4

1,797

7.4

14.4

66
14
9
5
5
5
n.a.
n.a.
10
4
n.a.
9
4
7

1,645
1,521
1,294
1,290
1,320
2,580
n.a.
n.a.
3,010
2,200
n.a.
1,933
2,800
2,211

7.4
11.2
9.9
1.0
0.0
–2.6
n.a.
n.a.
–5.7
–12.7
n.a.
–1.6
17.9
–4.9

14.9
15.2
20.3
–6.3
13.3
4.5
n.a.
n.a.
13.1
6.7
n.a.
10.3
21.3
1.7

District

125

1,431

3.3

1.7

Texas
Northern High Plains
Southern High Plains
Northern Low Plains
Southern Low Plains
Cross Timbers
North Central Texas
East Texas
Central Texas
Coastal Texas
South Texas
Trans-Pecos and Edwards Plateau
Southern New Mexico
Northern Louisiana

116
14
8
6
8
12
17
15
17
4
n.a.
14
3
6

1,713
480
494
721
856
1,842
2,518
2,257
3,903
1,263
n.a.
1,491
230
1,300

3.5
2.4
11.7
8.1
0.0
5.3
2.6
–0.8
4.4
1.7
n.a.
1.5
–1.3
–4.5

1.8
12.7
19.9
1.1
–0.8
–1.0
2.2
3.3
3.6
–7.5
n.a.
–1.9
–1.3
6.7

District

Cash rents for irrigated land increase in the fourth quarter.

2002

Fourth quarter 2011
109
1,394

Cropland—Irrigated

Real Cash Rents

2001

Average
value2

Percent change3
in value from

2004 2005

2006

2007 2008

2009

2010

2011

1
2
3
4
5
6
7
8
9
10
11
12
13

Ranchland
Real Land Values
Irrigated land values continue to rise as dryland and ranchland values
hold fairly steady.
2005 dollars per acre

1,600

Irrigated

1,400
1,200

Dryland

1,000
800
600

Ranchland

400
200
0

1
2
3
4
5
6
7
8
9
10
11
12
13

Number of banks reporting land values.
Prices are dollars per acre, not adjusted for inflation.
3
Not adjusted for inflation and calculated using responses only from those
banks reporting in both the past and current quarter.
n.a.—Not published due to insufficient responses but included in totals for
Texas and district.
1

2001

2002

2003

2004

2005

2006 2007

2008 2009

Agricultural Survey

2010

2011

Fourth Quarter 2011

Federal Reserve Bank of Dallas

Region 3—Northern Low Plains

Quarterly Comments
District bankers were asked for additional
comments concerning agricultural land values
and credit conditions. These comments have
been edited.

The drought conditions and declining commodity values could negatively impact real estate
values in our area. The drought has had a big
negative economic impact on local businesses
and the labor force in the area.

Region 1—Northern High Plains

Region 4—Southern Low Plains

We had large paydowns in our loan volume
earlier than expected from dryland cotton farmers and cow–calf operators because of insurance
and liquidations due to the drought. Our irrigated
producers spent more than the crop produced
and will start with less equity in 2012. Expectations for 2012 will be more conservative and
realistic given the projected continuation of the
drought.
Drought conditions affected most farm yields
and profits. Poor pasture conditions affected
profits for ranchers. Conditions remain dry at this
time.
Even with higher prices, we see most sales
being closed with cash or with very low loan-tovalue ratios.

2012 crop operating loans will be heavily
influenced by the 2012 federal crop insurance
program and the crop insurance net guarantee
provided to each producer. There will be less
influence from farm program payments. The
dry conditions at this time will hinder livestock
producers, as grass and native forage are not expected to be established due to overgrazing and
lack of adequate rainfall. Cattle numbers are low,
with replacement cattle expected to be expensive
going into another dry season.

Region 2—Southern High Plains
We are looking forward to a better year in
2012. Surely we will not have another drought
like 2011. We are thankful for federal crop insurance.
Funds are being pulled out of the market due
to the risk, uncertainty and low returns. Some of
these funds are being used to buy farmland that
can yield a 4 to 7 percent return using upfront
cash leases to mitigate income risks. These buyers are confident that land prices will remain
stable if they need to liquidate.
In addition to total losses of the dryland cotton crop in 2011, irrigated crop yields were down
substantially. Both 2011 irrigated cotton yields and
corn yields were down approximately 40 to 50
percent from past years’ production averages. Most
weather forecasts call for another dry year for 2012,
which will compound the problems in our area. As
a result of the record drought and poor commodity
yields, many farmers would have been forced to
liquidate their farming operations if it were not for
federal crop insurance. Most farmers will see a significant reduction in their net worth or equity once
the 2011 crop year is over. Most agricultural suppliers and local economies will continue to struggle
as a result of 2011 losses, especially if the record
drought continues.
Farm income has increased over 2010 due to
insurance proceeds, not crop income.
Crop insurance has been the main source of
farm income for this year. This has resulted in early
paydowns of operating lines. Drought is still the
main concern going into the 2012 crop year.
This crop season is wrapping up with bifurcated results. Producers who presumed that the
drought would be severe and did not push the crop
with inputs and took high crop insurance levels
have actually thrived, especially pure dryland growers. On the other hand, producers who continued
to irrigate throughout the season have had poor
yields, high costs and breakeven results at best.
The other negative aspect of our short cotton crop
(maybe 1.5 million bales compared to 4 million on
a good year) is that associated industries are suffering, especially cotton gins and warehouses.

Agricultural Survey

Region 5—Cross Timbers
The drought has been very tough in our area.
Yields and grades are down. Hay is short, and
ranchers are selling cattle. The cattle market is
strong, which has been a lifesaver.

Region 6—North Central Texas
The area received widespread rainfall recently,
and wheat is off to a decent start. Oats were damaged by fall drought conditions. The biggest concern for cattle producers is having enough forage
and hay to feed until March, or further liquidation
is expected.
Recent rainfall has encouraged local ranchers
and farmers with adequate moisture for small grain
growth. However, hay supplies are still very limited
and expensive. Cattle continued to be liquidated
based on lack of pasture and feeding costs. All
cattle prices have increased over the last quarter,
with fewer numbers sold at local markets.
Some of our producers had their best year ever,
with good grain, cotton and cattle prices, lower harvest costs, large insurance payments and payments
from the Supplemental Revenue Assistance (SURE)
program.
Due to extremely dry weather conditions, the
farmers’ and ranchers’ crops and grazing land have
suffered greatly.

Region 7—East Texas
Poultry and cattle operations in this area are
still suffering from the inflated price of corn. Until
this is controlled, we feel that livestock farming in
general will continue to suffer.

Region 8—Central Texas
The 15-month drought affecting most of Texas
has been a drag on agriculture. We had a three-inch
rain over a recent weekend, which should affect the
economics of agriculture positively. Cattle prices are
very high, even prohibitive for an investor to purchase stocker cattle. The current price of hay ($125
per roll) is significant for the seller and unaffordable
for the buyer. Some customers contracted alfalfa in
North Dakota to truck to South Texas. Spring hay
should be affordable.
At the present time, very little land is being sold
in our area, primarily due to the exploration of the
Eagle Ford shale activity. Many landowners, primarily west of Yoakum, have received sizable leases,

Fourth Quarter 2011

and several wells are in production. Landowners in
those areas who are willing to sell have set prices
extremely high, with a possible purchaser having
to pay additional funds to acquire any royalty interest (which is making prices prohibitive). This is
expected to last for 10–20 years, so we continue to
watch such activity in those areas.
Drought is still impacting our area. Cattle runs
have remained high all year and most producers
have culled herds pretty hard. If weather conditions
get worse and hay gets shorter, we may see producers selling off their better cattle and not keeping
any replacement heifers. The future of the cow–calf
business remains to be seen if we get no winter
and spring rains. The number one concern in our
area is lack of surface water. Ponds and lakes are
now dry that have not been dry in many years, and
it will take big rains to fill them up again.
Farmers and some ranchers had very good
profits due to high commodity prices. While yields
were well below average, crop insurance coverage
was beneficial. Cattle prices were good, but expenses are up due to drought.
Ranchers who were banking on improved
weather conditions for winter pasture have seen
their wishes come true. The continued purchase of
above-market-value feed continues for those who
can afford it, and those who couldn’t or wouldn’t
have sold out and are either on the sidelines or will
not reenter the ranching business.
Many absentee landowners have their land for
sale; however, there are few sales because many of
these people paid cash for it and are just waiting
for things to turn around in the land market.

Region 10—South Texas
Peanut farmers in the area had an exceptional
year with high yields and record high value. Even
with high irrigation expense, they did very well.
The livestock producers have had a rough time
with the drought. We estimate that our area has
about 30 percent of the cattle that it normally does.
Irrigated grain and cotton farmers also did well this
year. We are expecting to see higher rent next year
with more competition for good irrigated land.

Region 11—Trans-Pecos and Edwards Plateau
One positive aspect of this drought that is
different from other droughts of the past is that
worldwide demand for beef, lamb and goats has
kept ag prices at high levels. Many ranch operators have had to sell their stock but have at least
been able to pay out and, in some cases, put
some money back for restocking in the future.
One negative aspect is that many older ranchers,
having sold out, will opt not to restock because
of the loss of long-time improved bloodlines
in their herds. Accordingly, the entire livestock
industry suffers quality-wise as a result. One
promising factor in the Edwards Plateau is that
the months of October, November and December
have brought some promising rains to the area.
However spotty the coverage, they nevertheless
help soothe the parched souls of those ranchers
struggling with the decision of whether to get out
or stay in.
The drought has forced much liquidation of
sheep, goats and cattle in our area. Our farmers
have done all right, thanks to federal crop insurance. We made very little cotton.
Increases in ranching income are due to the
forced sale of livestock because of drought.

Federal Reserve Bank of Dallas

Full text of Agricultural Survey : Fourth Quarter 2011

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