Full text of Agricultural Survey : Second Quarter 2011
The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
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 Second Quarter 2011 One-third of bankers report a decrease in 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 availability of funds index remains high. Index 50 40 30 20 Bankers responding to the second-quarter survey reported that severe drought continues to manifest challenges for the Eleventh District agricultural community. Comments from bankers noted widespread negative impacts of the dry conditions—low or nonexistent yields for many dryland crops, stress to irrigated crops and very poor pasture conditions. Respondents in several regions mentioned that farmers will likely collect crop insurance money to offset drought losses. There were numerous reports of ranchers liquidating their cattle herds due to inadequate grazing conditions and a lack of surface water. Cropland values continued to rise, while ranchland values edged down from last quarter. Expectations for farmland values were slightly less positive than in recent reports, with less than 10 percent of bankers anticipating an increase over the next three months. District agricultural lending trends generally worsened in the second quarter. Overall loan demand decreased, with the exception of operating loans, which were stable. Comments suggested higher input costs may be driving the relative strength of demand for operating loans. The weakest loan category this quarter was for feeder cattle; more than 30 percent of respondents saw a decrease in volumes. Despite poor agricultural conditions resulting from drought, the great majority of bankers said loan repayment rates held steady or increased. 10 0 –10 Farm Lending Trends –20 –30 What changes occurred in non-real-estate farm loans at your bank in the past three months compared with a year earlier? –40 –50 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Demand for loans Availability of funds Rate of loan repayment Loan renewals or extensions Amount of collateral required Rate of Loan Repayment Loan repayment rates show little change. Index 50 Percent Reporting Greater Same 14.1 52.4 35.9 62.4 15.3 73.5 10.1 73.8 14.3 85.7 Less 33.5 1.8 11.2 16.1 0.0 2011:Q1 Index –3.7 40.9 15.0 –18.0 7.5 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 10 0 –10 –20 –30 –40 –50 2011:Q2 Index –19.4 34.1 4.1 –6.0 14.3 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 2011:Q2 Index –11.2 –23.3 –15.7 –12.1 0.6 –16.9 –9.7 Percent Reporting Greater Same 14.2 60.4 7.3 62.0 0.0 84.4 1.6 84.7 18.9 62.8 9.0 65.1 12.7 64.9 Less 25.4 30.7 15.7 13.7 18.3 25.9 22.4 2011:Q1 Index –7.6 –6.1 –13.8 –10.6 6.1 3.9 2.3 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 June 7-15, and 172 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. Data may not match previously published numbers due to data revisions. For questions regarding information in the release, contact Emily Kerr, 214-922-6941. Loan-to-Deposit Ratios at Survey Banks Average desired and actual ratios Loan Renewals or Extensions A majority of bankers note no change in requests for loan renewals or extensions. Percent 75 Desired Ratio 70 Index 65 50 60 40 55 30 50 20 45 10 40 0 35 2010:Q2 –10 2010:Q4 2010:Q3 –30 Banks reporting (percent) –40 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 2011 Less than 41% 41% to 50% 51% to 60% 61% to 70% More than 70% Amount of Collateral Required All bankers report stable or increased collateral requirements. 2011 Q2 Q3 Q4 Q1 Q2 22 10 15 21 32 20 10 14 23 33 18 16 20 19 28 28 15 15 20 22 21 18 14 22 24 Interest Rates Index 50 Fixed 40 Average rate (percent) 30 20 2010 10 0 Feeder cattle Other farm operating Intermediate term Long-term farm real estate –10 –20 –30 –40 –50 2011:Q2 2011:Q1 Distribution of Loan-to-Deposit Ratios –20 –50 Actual Ratio 2011 Q2 6.99 7.09 7.16 6.89 Q3 6.92 7.03 7.03 6.76 Q4 6.89 7.00 6.95 6.73 Q1 6.83 6.95 6.94 6.70 Q2 6.77 6.83 6.96 6.76 6.21 6.33 6.35 6.13 6.05 6.29 6.25 5.91 6.05 6.23 6.20 5.96 6.08 6.28 6.19 5.91 6.06 6.24 6.30 6.06 Variable 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Feeder cattle Other farm operating Intermediate term Long-term farm real estate Anticipated Trend in Farmland Values Total Agricultural Loans* Less than 10 percent of bankers expect farmland values to increase over the next three months. Eleventh District agricultural loan volumes increased slightly in the first quarter. Index 50 8,500 Millions of dollars (seasonally adjusted) 40 8,000 30 7,500 20 7,000 10 6,500 0 6,000 –10 –20 5,500 –30 5,000 –40 4,500 –50 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 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. 2 Agricultural Survey | Second Quarter 2011 | FEDERAL RESERVE BANK OF DALLAS 2011 Rural Real Estate Values — Second Quarter 2011 Cropland—Dryland Eleventh Federal Reserve District Average value2 Second quarter 2011 Banks1 1 3 12 N E W 2 M E X I C O 4 L O U I S I A N A 5 13 6 7 T E X A S 11 8 9 10 1 2 3 4 5 6 7 8 9 10 11 12 13 Percent change3 in value from Previous Previous quarter year District 134 1,381 2.7 5.8 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 121 18 14 9 9 13 17 6 18 6 n.a. 10 5 8 1,403 540 575 800 828 1,323 2,103 2,200 2,717 1,525 n.a. 1,468 385 1,688 2.9 4.8 6.3 2.7 –2.7 –1.5 0.2 3.2 1.8 26.5 n.a. –1.0 0.0 –1.0 5.5 5.7 15.5 12.2 1.2 3.4 –2.6 8.0 –0.4 40.9 n.a. 8.1 –16.5 14.5 98 1,673 1.2 10.3 85 18 14 7 6 6 5 3 10 5 n.a. 10 6 7 1,591 1,325 1,298 1,564 1,217 2,142 2,280 2,000 2,810 1,850 n.a. 3,365 1,883 2,246 2.2 0.1 6.6 –0.7 0.0 0.0 10.0 0.0 0.0 25.0 n.a. –0.8 –0.5 –4.6 11.0 7.1 14.7 35.8 14.0 4.7 40.0 25.0 –1.5 17.5 n.a. 20.6 –1.0 17.5 District 154 1,437 –2.3 –0.7 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 144 17 12 9 9 15 21 18 19 5 n.a. 18 5 5 1,716 460 481 808 1,017 1,803 2,267 2,219 3,255 1,240 n.a. 1,749 240 1,530 –2.3 9.5 7.8 –1.4 –1.3 –4.6 –8.4 –2.1 2.5 –14.3 n.a. –3.6 0.8 0.0 –0.9 14.2 10.4 25.5 5.3 –2.5 –6.7 –2.2 5.2 –5.7 n.a. –4.1 2.1 5.0 Cropland—Irrigated District Real Cash Rents Irrigated cash rents fall while dryland and ranchland cash rents hold fairly steady. 1 2 3 4 5 6 7 8 9 10 11 12 13 2005 dollars per acre 100 Irrigated 90 80 70 60 50 40 Dryland 30 20 Ranchland 10 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Real Land Values Irrigated and dryland values continue to rise while ranchland values edge down. 2005 dollars per acre 1,600 Irrigated 1,400 1,200 Dryland 1,000 800 Ranchland 1 2 3 4 5 6 7 8 9 10 11 12 13 1 600 Ranchland 200 2001 2002 2003 2004 2005 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. 2 400 0 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 2006 2007 2008 2009 Agricultural Survey | 2010 2011 Second Quarter 2011 | FEDERAL RESERVE BANK OF DALLAS 3 Quarterly Comments a dryland crop are poor. The financial condition of most producers improved last year with high commodity prices. Projected commodity prices look good, but production costs are higher. The 2011 wheat crop was a bust, and cattle struggled to gain the needed weight. Severe drought and high winds are hurting all areas of ag in our region. District bankers were asked for additional comments concerning agricultural land values and credit conditions. These comments have been edited. Region 4—Southern Low Plains Region 1—Northern High Plains Extreme heat, wind and continued drought are having a significant negative impact on growing conditions. Harvestable dryland wheat is virtually nonexistent. Irrigated wheat yields are anticipated to be well below average with above-average costs. Dryland crops for fall harvest will be minimal. Irrigated summer crops are stressed from early heat, wind and lack of rainfall. The current draw down of the aquifer could be above average, which could impact future land prices. Drought conditions necessitate land and herd management for livestock producers, who are forced to downsize due to the lack of native grass pasture. Dryland crop production is a disaster as well. Insured crops allow producers to avoid a potentially severe adverse impact. Because of the expectation of higher prices and crop success, farmers started out the year investing heavily in equipment and the 2011 crop. However, due to the extreme nature of the current drought, all bets are off. This is the worst start to a crop in at least 35 years. The recent increase in loan demand is due to higher crop inputs. Present cattle and grain prices are extremely high and volatile. Upon their decline, borrowers may not be able to service their present long-term debt load as a result of continued expansion of their operations. Region 2—Southern High Plains Drought is hurting crop production. It looks like dryland crops are gone, and insurance will pay back the loans. Irrigated crops are fair, but having to water almost nonstop is hard on the wells. It has been the driest first five months of the year since the National Weather Service has been keeping records in Lubbock. Cotton production will be greatly reduced. While we have irrigation, there is not enough water to grow a crop with zero rain. Most farmers will collect insurance money and raise no crop, which will hurt ag-related businesses like cotton gins and their suppliers. Dryland cotton is a total loss, with wind damage to the majority of the irrigated cotton crop. Crop insurance claims are expected to be the major source of income for the 2011 crop year. Dryland cotton will be abandoned and insurance collected. Irrigated cotton production will be way off; extremely hot and windy conditions have led to poor establishment. Production expenses for irrigated cotton will be exorbitant. The real loser will be ag infrastructure; input suppliers and cotton ginners will miss out on throughput. Region 3—Northern Low Plains We are experiencing extreme drought conditions. Pastures are in very poor condition, and producers are liquidating their cow herds. Most crops have been planted, though conditions for making 4 Agricultural Survey | Current drought conditions are affecting crop revenues, and most farmers are planting low-inputcost crops due to the poor outlook for rainfall. Many ranchers are being forced to reduce herd size due to lack of surface water and land suitable for grazing. Region 5—Cross Timbers Drought conditions are extreme and are triggering forced sales of livestock due to decreasing forage supplies and availability of stock water. This is causing decreases in what had been historically high livestock prices. Our farmers are having similar problems due to lack of rainfall. We had a poor wheat crop with well above average prices. Hay production will be spotty at best. The recent wheat harvest was decent in our immediate area. We received some rain and snow that others did not receive. Most farmers in our bank have had a profitable year. Pasture conditions are poor, and hay production is going to be short. A lot of cattle will be going to market if we don’t get rain soon, but at least prices are still very good. Dairies are getting good milk prices, but feed costs are very high. Region 6—North Central Texas Drought has caused the corn crop to be a total disaster. Cow herds are being liquidated weekly. Most cotton still has some potential, but that will decline daily. Hay supplies are short, and many ranchers are already feeding cattle. Conditions have surpassed the legendary 1950s drought. Dry weather continues to affect farming and ranching in our area. While cattle prices are favorable, stock water, hay and grazing conditions continue to decline. Region 7—East Texas We are in the early stages of depleting our cattle supply. Drought conditions and the efforts of the feedlots to fulfill their contract demands with the slaughterhouses are adversely affecting our ability to supply replacement cattle. New oil and gas activity in our area has played a very important part in subsidizing ag income for our local farmers. This has driven up land prices as well. We are experiencing the longest spring drought in modern history. Dryland corn will be an insurance claim. Grain sorghum may be harvested, but we expect very low yields. The cotton crop still has a chance with good rainfall, but it is highly unlikely to approach a normal yield. Hay production was limited to one cutting, but prices are high. The rice crop will be expensive with extra water costs; extreme heat may affect yield and quality. Revenue protection crop insurance should allow farmers to be financeable next year. Many herds have been sold off or greatly reduced, given strong pricing earlier in the year. Some producers are liquidating assets to pay off loans. Drought is currently forcing the smaller cattle operations out of business. Hay is almost completely unavailable. Farm and ranch income are down significantly due to drought. Mineral landowners continue to benefit from oil and gas leasing, pipeline construction and in some cases, production. This trend is expected to continue for at least three to five years in our area. Region 11—Trans-Pecos and Edwards Plateau Our area has had less than an inch of rain since October, and ranchers have begun to cut their livestock numbers. The drought continues to force livestock sales. Prices are softening as more inventory hits the markets. With livestock numbers low, it may be expensive to buy back in. Wildfires have taken out entire ranches, including infrastructures. This past year has been the driest in history for parts of the Edwards Plateau. Feed costs are high, hay is scarce and animal conditions are less than ideal. Prices have stayed relatively strong across the board for livestock. Of particular concern to many small community banks are increased regulatory scrutiny and stringent exams, which leave them with the impression that credit is not available. Region 12—Southern New Mexico Drought conditions will be a limiting factor on crop production this year. Our area has had very little measurable precipitation over the past nine months. The winter wheat crop is almost nonexistent from lack of moisture. Corn and cotton production will suffer as well if it doesn’t start raining soon. Region 13—Northern Louisiana We had an excellent wheat crop. We are now experiencing above average temperatures and below normal rainfall. We need a rain soon, or dryland crops will be at risk. Region 8—Central Texas Drought conditions continue to worsen, with water becoming a big concern as small tanks go dry. Hay sales are up. Cattle prices remain strong at area sale barns, despite futures prices dropping. We can look for a big reduction in cattle numbers if the drought continues, making replacement heifers and cattle in the fall very expensive. Second Quarter 2011 | FEDERAL RESERVE BANK OF DALLAS