Full text of Agricultural Survey : Second Quarter 2016
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Second Quarter 2016 DALLASFED Agricultural Survey Quarterly Survey of Agricultural Credit Conditions in the Eleventh Federal Reserve District Survey Highlights B ankers responding to the secondquarter survey continued to report concern for producers’ financial positions due to low commodity prices and high production costs. Wheat harvest has been disrupted in a number of regions due to weather, including rain and hail. A few bankers noted some relief for cotton producers with the recently passed Cotton Ginning Cost Share program. Although cattle prices were lower, grazing conditions were good across regions. District cropland values increased this quarter. Real irrigated land values rose 4.7 percent over last quarter, and real dryland values were up 2.3 percent. Ranchland values were mostly unchanged again this quarter (Figure 2). However, according to bankers who responded both this quarter and in second quarter 2015, ranchland and dryland values increased year over year, while irrigated land values declined slightly (Table 1). The anticipated trend in farmland values index remained negative for a fourth consecutive quarter, suggesting respondents expect farmland values to trend down in the coming months. The credit standards index indicated continued tightening of standards; no bankers reported loosening standards this quarter, but the vast majority of respondents continued to note no change (Figure 4). Demand for agricultural loans decreased for a third consecutive quarter. Loan renewals and extensions picked up as loan repayment rates continued to decline. Overall, the volume of non-realestate farm loans was lower than a year ago. Operating loans continued to increase year over year; all other loan categories fell in volume year over year this quarter (Figure 1). Figure 1 Farm Lending Trends What changes occurred in non-real-estate farm loans at your bank in the past three months compared with a year earlier? Index Percent reporting, Q2 2016:Q1 2016:Q2 pGreater Same qLess –1.5 –3.9 18.3 59.5 22.2 6.9 3.4 8.7 86.0 5.3 –33.9 –28.2 3.2 65.3 31.5 24.0 25.0 29.0 66.9 4.0 Demand for loans* Availability of funds* Rate of loan repayment Loan renewals or extensions Index Availability of funds* 50 40 Loan renewals or extensions 30 Rate of loan repayment 20 10 0 –10 –20 –30 Demand for loans* –40 –50 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 What changes occurred in the volume of farm loans made by your bank in the past three months compared with a year earlier? Index Percent reporting, Q2 2016:Q1 2016:Q2 pGreater Same qLess 0.0 –8.1 16.1 59.7 24.2 Feeder cattle loans* –31.4 –31.1 3.7 61.5 34.8 Dairy loans* –17.1 –11.6 4.1 80.2 15.7 Crop storage loans* –10.4 –14.3 3.2 79.3 17.5 5.7 5.7 21.0 63.7 15.3 Farm machinery loans* –28.5 –24.3 7.9 59.9 32.2 Farm real estate loans* –25.0 –24.2 4.0 67.8 28.2 Non-real-estate farm loans Operating loans *Seasonally adjusted. NOTE: Survey responses are used to calculate an index for each item by subtracting the percentage of bankers reporting less from the percentage reporting greater. Positive index readings generally indicate an increase, while negative index readings generally indicate a decrease. } Quarterly Comments District bankers were asked for additional comments concerning agricultural land values and credit conditions. These comments have been edited for publication. Region 1 • Northern High Plains XXLow commodity prices continue to hamper our farmers and projected cash flows. The lack of rain in our area has not helped either, as some farmers are contemplating whether or not to farm as much as they have done in the past, which would put a strain on our loans. XXLand values remain stable despite less-favorable operating profit margins. This is due to demand for land being greater than the limited amount of land on the market for sale in our area. Weather has been ideal for planting of fall crops; however, higher-cost input crops such as irrigated corn may see less acreage due to initial projected poor economics. Lower cattle prices continue to impact the viability of cattle ownership by many, especially for smaller operators. 2016 remains a year of being cautious and seeking alternatives to traditional operations. XXMoisture is good. Our year-to-date totals are higher than the three-year period from 2011–13. Summer grazing conditions are exceptional. The wheat crop looks good, although it has sustained some hail damage. Some of the corn and most of the cotton had to be replanted due to rains. Feedlot cattle are still suffering large losses. XXAlong with timely rain is crop-damaging hail. XXFor several years, producers were able to compensate for poor cotton and grain prices with cattle profits. Given the current prices for all of the above, with no improvement, a shakeout among producers is likely in the near future. Region 2 • Southern High Plains XXA better farm bill is needed to provide a safety net for producers. The ginning cost-share program just approved will definitely help our cotton farmers and is very much needed. Commodity prices need to improve as do cattle prices. We are thankful for the timely rains we have received in the past couple of months. XXFarm income will be challenged for 2016 crops. Simply put, the costs of production are well above the current market prices for almost all crops. As such, farmers are currently projecting losses for the year. Farmers with leverage will have a hard time surviving currently projected losses. XXIt was a challenging renewal season. We were unable to continue to provide operating financing for several customers. Access to Farm Service Agency guarantees was constrained as their underwriting guidelines don’t match with the reality of low commodity prices. Bankruptcies and voluntary liquidations have been the highest in many years. Surprisingly, farmland values are holding steady, but most market participants doubt this will last if prices don’t reverse their decline. Stocker and feeder cattle operators continue to bleed red ink; gains from 2014 have all been given back, plus some, as immense equity has been lost within this industry. The crop outlook for the South Plains is decent. Most areas have favorable moisture conditions, but cold, wet weather has caused delays in getting cotton in. The wheat crop looks pretty good, but prices and the basis are horrible. Rebounding corn prices are an encouragement. The just-announced cotton ginning support program will give some cotton producers a shot in the arm, although the $40,000 payment limit hurts. So, things are about the same: Everyone is in survival mode. 12 N E W M E X I C O Regions of the Eleventh Federal Reserve District Region 3 • Northern Low Plains XXLow commodity prices are stressing cash flows, and repayment rates have slowed on stocker lines due to a significant reduction in the price of cattle. Crops and pastures are currently in good condition. Wheat is being harvested. Dryland yields have been better than normal on harvested acres. XXWheat harvest started with average yields and poor prices but stalled due to heavy rain. Very little wheat was grazed out this year. Most farmers are in a perfect storm where they will cut bushels just above the multiple peril crop insurance quantity and sell for a low price. Region 4 • Southern Low Plains XXAgriculture looks bleak for the next few years. Over- regulation and government manipulation of markets are killing America. XXRecent rains have improved cotton crop prospects. Planting is full speed. No grain sorghum is being planted due to aphids. Wheat harvest has been disrupted due to rains; some field grain is sprouting in the head. Stocker cattle operators have lost a large amount of collateral margin due to lower cattle prices. Cow-calf operators are seeing a drop in collateral and cash flow margins due to the drop in calf prices. XXDryland cotton is a crop of the past. It cannot keep up with the living expenses or the cost of equipment and technology involved in the initial seed expense. It is time to move on to something productive. The assistance for ginning expenses is just a token offering, yet it is more than we should realistically expect to receive for the cotton farmer. Let’s move on to something sustainable— even if we have to reduce our standard of living some. Insurance and government payments are not the answer. Region 5 • Cross Timbers XXLand sales continue at a very moderate pace with steady values. An abundance of rain in recent weeks has led to all lakes and ponds being full and even some flooding. Grazing conditions and hay production are and will be very good. Lower prices for calves and yearlings are affecting beef cattle producers’ incomes. Milk prices are down to or below breakeven, so dairymen are also being squeezed again. XXWe finally received 15-plus inches of rain in May and the first week in June, and 100 percent of all stock tanks are full, plus our area lake that feeds 150,000 people is full. It was down to 12 percent capacity a year ago. Farmers are waiting for fields to dry to start farming. Agricultural Survey • Second Quarter 2016 • Federal Reserve Bank of Dallas Region 6 • North Central Texas XXCattle prices are still down from a year ago. We have been deluged with heavy rainfall, and our farmers should be on the second or third cutting of hay but most are on the first. XXWe have had a few farmers with carryovers from last year who have requested additional funds to cover the carryover plus operation cost this year. Last year, our area had extensive rain and flooding, which drastically reduced production. For the most part, we have used the same analysis policies whether it’s a good time or bad time, which helps keep our ag loans constant. XXThe cattle market has softened, which has primarily hurt the stocker calf prices. Region 7 • East Texas XXThere seems to be some positive movement in farm real estate in East Texas—mostly for smaller tracts of less than 100 acres. There have not been any major price fluctuations in cost per acre, and demand may be increasing slightly, but not enough to say it is an upward trend. Cattle prices have dropped but are still favorable enough to be profitable at this time. We have had no adverse situations resulting from lower cattle prices. XXCattle loans have slowed considerably with the recent cattle market downturn. Real estate loans have slowed, with very little land moving at this time. Crops that withstood the recent floods look very good. Pasture conditions are very good to excellent. Region 8 • Central Texas XXWe have had plenty of rain over the past few months. Most crops are in good shape, and pasture land is in excellent shape, with the best spring in many years. There’s lots of hay to be made once it dries out enough to get into fields. Cattle prices have remained fairly stable the past few weeks and will hopefully hold at the current prices through the summer months. We are starting to see more for-sale signs on residential and farm and ranch property in the area, due to the slowdown in oil and gas activity and the number of layoffs starting to impact area economies. Sales tax numbers have also been down for area towns, and we are starting to see an inventory of homes on the market exceeding 90 days. Table 1 Rural Real Estate Values—Second Quarter 2016 1 Banks1 3 Average value2 Percent change in value from previous year3 Cropland—Dryland District* 2 4 L O U I S I A N A 5 6 11 7 T E X A S 8 13 94 1,792 4.3 Texas* 1 Northern High Plains 79 12 1,822 848 5.0 6.4 2 Southern High Plains 7 664 –2.6 3 Northern Low Plains* 7 808 2.8 4 Southern Low Plains* 8 1,242 27.6 5 Cross Timbers 9 10 4 1,425 –2.6 15 2,723 6.4 7 East Texas* 7 2,648 0.0 8 Central Texas 7 3,507 6.6 9 Coastal Texas 4 2,613 3.9 n.a. n.a. n.a. 6 1,892 6.1 4 11 325 2,314 0.0 –7.3 6 North Central Texas 10 South Texas 11 Trans-Pecos and Edwards Plateau 12 Southern New Mexico XXThe deluge of rain in excess of 15 inches in parts of our trade area will put additional operational costs into play: replacing fencing, repairing erosion and replacing lost livestock, to mention a few. Hay making may be postponed until July. Many meadows have not yet been cut. Region 9 • Coastal Texas XXMoisture conditions have been adequate to excessive in some areas. Crops managed to sustain their potential, with some damage in some areas due to winds, flooding, hail and bug pressure. Pastures are in good shape, with worming and fly pressure being high. Good management practices with livestock are needed to maintain optimal growth of calves heading into summer. Prices have still maintained some stability, with grain providing resistance with recent increases. Some reestablishment or replacement of cattle has occurred in the area, with lowered replacement prices and relatively good calf prices. Grain sorghum harvest should be starting soon. Cotton is growing with ample moisture. The areas with too much rain have lost some bolls, and the plant is trying to reestablish blooms and new bolls. Corn had good moisture with some dry times in April that put stress on the plant. Overall, most crops should be harvested on time, weather permitting. Grain and cotton prices have been on the upside, with factors across the nation, South America and other areas showing lower production or increased demand for grain, beans and cotton. Overall, the potential of having a good crop this year is very possible, but we still have variables that may affect overall production, quality, price and income. The cattle markets have still been steady with good prices. Feed usage has also been up and may affect the feeders placed in feed and overall pricing. Region 11 • Trans-Pecos and Edwards Plateau XXThe recent heavy rains have created harvest issues for many of the area wheat farmers. XXCattle prices have softened considerably over the past 90 days. Sheep and goat markets have remained pretty steady. Things in general are pretty positive over much of the Edwards Plateau. XXOur area had very good rainfall. The cattle market remains soft. 13 Northern Louisiana Cropland—Irrigated District* 69 2,351 –1.0 Texas* 1 Northern High Plains 52 2,087 –1.0 12 1,944 –1.9 2 Southern High Plains 6 1,392 –4.7 3 Northern Low Plains* 4 1,564 1.6 4 Southern Low Plains 8 1,588 17.6 5 Cross Timbers n.a. n.a. n.a. 6 North Central Texas n.a. n.a. n.a. 7 East Texas 4 2,925 –8.8 8 Central Texas 4 3,375 0.0 9 Coastal Texas 3 2,983 0.0 n.a. n.a. n.a. 11 Trans-Pecos and Edwards Plateau 5 3,180 2.5 12 Southern New Mexico 6 3,817 –1.4 11 3,441 –1.2 103 88 1,640 1,956 1.5 1.5 10 South Texas 13 Northern Louisiana Ranchland District* Texas* 1 Northern High Plains 11 589 4.2 2 Southern High Plains 5 690 –5.5 3 Northern Low Plains 7 857 8.3 4 Southern Low Plains* 9 1,214 18.8 6 16 1,658 2,619 5.2 11.9 7 East Texas 9 2,861 –2.9 8 Central Texas 8 4,563 1.8 9 Coastal Texas 3 2,450 1.1 n.a. n.a. n.a. 12 1,617 –2.0 5 270 2.2 10 2,040 –3.0 5 Cross Timbers 6 North Central Texas 10 South Texas 11 Trans-Pecos and Edwards Plateau 12 Southern New Mexico 13 Northern Louisiana *Seasonally adjusted. 1 Number of banks reporting land values. 2 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. Agricultural Survey • Second Quarter 2016 • Federal Reserve Bank of Dallas Figure 3 Figure 2 Real Cash Rents Real Land Values 2005 dollars per acre 2,200 2005 dollars per acre per year Irrigated 120 2,000 Irrigated 50 1,800 1,600 Ranchland 1,400 1,200 100 40 80 Dryland 30 Dryland 1,000 2005 dollars per acre per year 60 800 60 20 600 40 Ranchland 400 10 20 200 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0 NOTE: All values have been seasonally adjusted. NOTE: All values have been seasonally adjusted. Table 2 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Figure 4 Anticipated Farmland Values and Credit Standards Interest Rates by Loan Type Long-term farm real estate Intermediate term Other farm operating Feeder cattle What trend in farmland values do you expect in your area in the next three months? Fixed (average rate, percent) Index Anticipated trend in farmland values* Percent reporting, Q2 2016:Q1 2016:Q2 pUp Stable qDown –18.9 –5.7 7.8 78.7 13.5 What change occurred in credit standards for agricultural loans at your bank in the past three months compared with a year earlier?† Credit standards 2016:Q1 2016:Q2 pTightened Same qLoosened 15.5 18.4 18.4 81.6 0.0 Index 50 2015:Q2 5.93 6.04 5.93 5.74 Q3 6.03 6.16 6.05 5.79 Q4 6.04 6.08 5.93 5.67 20 2016:Q1 6.07 6.11 6.09 5.81 10 Q2 6.08 6.19 6.07 5.82 40 30 Credit standards † 0 –10 Anticipated trend in farmland values* –20 Variable (average rate, percent) 2015:Q2 5.52 5.57 5.51 5.27 Q3 5.65 5.70 5.63 5.36 Q4 5.70 5.73 5.69 5.31 2016:Q1 5.72 5.74 5.78 5.38 Q2 5.73 5.80 5.68 5.32 DALLASFED –30 –40 –50 2011 2012 2013 2014 2015 2016 *Seasonally adjusted. †Added to survey in second quarter 2011. NOTE: Survey responses are used to calculate an index for each item by subtracting the percentage of bankers reporting less from the percentage reporting greater. Positive index readings generally indicate an increase, while negative index readings generally indicate a decrease. Agricultural Survey is compiled from a survey of Eleventh District agricultural bankers, and data have been seasonally adjusted as necessary. Data were collected June 7–15, and 129 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 firstname.lastname@example.org or by calling 214-922-5270. It is available on the web at www.dallasfed.org/research/agsurvey. For questions, contact Amy Jordan, 214–922–5178. Agricultural Survey • Second Quarter 2016 • Federal Reserve Bank of Dallas