Full text of Agricultural Survey : Third Quarter 2013
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Third Quarter 2013 DALLASFED Agricultural Survey Quarterly Survey of Agricultural Credit Conditions in the Eleventh Federal Reserve District Survey Highlights B 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* ankers responding to the third-quarter survey continued to report widespread drought conditions, although there were some reports of scattered rain. Many 2013:Q2 2013:Q3 pGreater Same qLess –18.7 –10.2 12.9 64.0 23.1 23.2 21.0 23.7 73.7 2.7 6.5 7.5 11.6 84.4 4.1 –10.2 –6.1 4.7 84.5 10.8 Demand for loans Availability of funds ranchers continued to sell off some of their Rate of loan repayment herds, and survey respondents noted that cattle Loan renewals or extensions Percent reporting, Q3 prices remain high. Scattered rain in August in the Northern High Plains, Cross Timbers and Southern New Mexico improved crop conditions. Crop conditions across the other regions were mixed, and the harvest of summer crops has begun in a number of regions. Farmland values increased slightly in the third quarter and were above year-ago levels. Ranchland and irrigated cropland values increased almost 2 percent over last quarter. Index 50 30 20 10 Rate of loan repayment 0 Dryland values were only about 1 percent above –10 last quarter’s level. –20 The great majority of respondents continued to anticipate farmland values will remain –40 incomes decreased again this quarter. Credit –50 ter, although the vast majority of respondents noted no change in standards. Loan renewals or extensions –30 unchanged over the next three months. Farm standards continued to tighten in the third quar- Availability of funds 40 Demand for loans 2003 2004 2005 Loan repayment rates increased again this quar- 2007 2008 2009 2010 2011 2012 2013 What changes occurred in the volume of farm loans made by your bank in the past three months compared with a year earlier? Index* Demand for agricultural loans continued to decline, as did loan renewals and extensions. 2006 Non-real-estate farm loans Percent reporting, Q3 2013:Q2 2013:Q3 pGreater Same qLess –9.4 –0.7 16.9 65.5 17.6 ter. Volumes for most types of loans continued Feeder cattle loans –24.4 –14.1 10.2 65.6 24.2 to decrease. The exception was operating loans, Dairy loans –18.6 –13.9 2.0 82.2 15.8 Crop storage loans –8.5 –1.9 7.5 83.2 9.4 Operating loans –4.5 5.6 18.8 68.1 13.2 Farm machinery loans –13.8 –15.2 6.2 72.4 21.4 Farm real estate loans –8.2 –11.7 8.3 71.7 20.0 which posted increasing demand for the first time since the second quarter 2011. *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 XXAfter early summer rains, we have returned to drought-like conditions with late summer heat and lack of rain. Irrigated corn and grain sorghum harvests will be better than the last two years. Due to the return of drought-like conditions, the winter wheat crop will have a disappointing start. XXWheat yields were small due to the May freeze. We had good moisture in early August, so our moisture profile has improved for wheat planting. Feedlot closeouts are still in the red, which is driving a lot of the noncorporate feeders out of business. Summer crops are in excellent shape. We should start harvesting corn within the next three weeks. Region 2 • Southern High Plains XXLack of water is a very large problem, especially as the drought in our area continues. Irrigated crops, where there is sufficient water, are above average. Dryland is essentially gone. We need a workable farm bill very soon. XXWe have had several producers pay back loans in full from insurance proceeds. Crop conditions are mixed depending on where it rained. Region 3 • Northern Low Plains XXCurrently, crop conditions look favorable, but the area is still in a severe drought with very few cattle on pasture. Livestock prices are incredibly high, but very few ranchers have cattle to sell. for calves and for cull cows. Dairymen are getting better milk prices now and doing somewhat better. Hay yields have been mostly fair, and prices are still pretty high. The pecan crop will be short after a good yield last year. XXCattle are being sold due to lack of rainfall. XXFarmers in our area had a good year be- cause we had adequate moisture for the crops. There is concern that we may be impacted by the drought that has now moved back into our area. XXWe do not know of any recent sales of agricultural land. Growing conditions are somewhat better than last year, but dry conditions remain. Hay sales and production are up from last year at this time. Region 7 • East Texas XXStocker and yearling cattle loans will be under closer scrutiny due to last year’s losses and the high price of cattle in relation to board for the spring of 2014. Crop loans are still uncertain with most farmers paying in full but with small profits posted. Region 8 • Central Texas XXSome farmers in our area received a good rain in early August, but it is very dry again now. Beef cattle prices remain very good both XXWe are still getting some spotty showers that help producers who receive them, but the heat quickly diminishes their effects. Area sale barns are having good runs due to continued drought; the only bright spot is that prices remain high on calves. Not many farmers are planning on summer, but we got some rain in early August. Many of our ranchers continue to liquidate their herds. Regions of the Eleventh Federal Reserve District Region 6 • North Central Texas XXThe weather has been dry most of the XXDrought conditions continue to negatively impact income. M E X I C O XXWe received approximately six inches of rain 60 days ago, but with 100 degree days, we are in need of more rain to sow wheat and replenish lakes and stock tanks as they remain less than 50 percent full. XXEagle Ford production continues to affect our bank, with continually increasing deposits and decreasing large loan demand. Ranchers are paying off loans with newly generated income from Eagle Ford. It is a daily chore to seek out new borrowers for loans. Region 5 • Cross Timbers 12 N E W Agricultural Survey • Third Quarter 2013 • Federal Reserve Bank of Dallas planting oats this fall until they see a better weather pattern, and if it does change, most people will plant rye grass later on. Hay prices have been inching up and should continue higher if no more rains come. The corn harvest is all in, and yields show a low of 60 bushels per acre to a high of 120 bushels per acre. XXRice farmers need water. XXSevere drought conditions persist in most of our market, putting financial stress on producers. Many producers will not be buying feed but will be selling livestock. These same conditions appear to be slowing down agricultural land sales as well. Region 11 • Trans-Pecos and Edwards Plateau XXWe have mainly irrigated farmland, and our area is in desperate need of rain to fill the reservoirs. Well water is too salty to apply for long without damaging the fields, and efforts to remove the salt are very expensive. Consequently, farm operating loans have dropped dramatically. XXRecent sporadic rains have helped range conditions generally in the Edwards Plateau. However, drought remains a problem for agricultural production. Numbers are down, and many producers have not received enough rain to replenish the deep soil moisture necessary to grow pasture grass. Prices for livestock are still strong, reflecting the short supplies available of cattle, sheep and goats. Rural Real Estate Values—Third Quarter 2013 1 Banks1 3 Average value2 Third quarter 2013 Percent change3 in value from Previous Previous quarter year Cropland—Dryland 2 4 5 6 11 District 108 1,481 0.9 3.4 Texas 1 Northern High Plains 97 14 1,510 709 1.0 3.4 3.9 9.8 2 Southern High Plains 13 638 –3.1 7.0 3 Northern Low Plains 6 958 4.9 –3.2 4 Southern Low Plains 6 917 0.0 2.3 5 Cross Timbers 9 1,572 0.0 17.4 16 2,256 0.2 2.2 5 1,910 1.5 –14.0 8 Central Texas 14 2,764 1.0 6.0 9 Coastal Texas 3 1,767 0.0 13.8 n.a. n.a. n.a. n.a. 10 1,640 6.1 6.6 12 Southern New Mexico 3 367 –5.9 6.3 13 Northern Louisiana 8 1,744 1.3 –2.5 81 8.5 L O U I S I A N A 7 13 T E X A S 8 9 6 North Central Texas 7 East Texas 10 10 South Texas 11 Trans-Pecos and Edwards Plateau Cropland—Irrigated XXDrought conditions continue. Cattle prices District remain good. XXCurrent demand for land and housing in the area is very high due to heavy oilfield activity and has driven up land values almost double in the last 12 to 18 months. Some ranches are being bought so that oil companies have a place to house not only equipment and field offices but also personnel. 1,939 –0.1 9.9 14 1,900 –4.1 12.7 2 Southern High Plains 13 1,510 5.4 10.1 3 Northern Low Plains 3 1,383 0.0 0.0 4 Southern Low Plains 5 1,560 0.0 5.3 5 Cross Timbers 4 2,475 4.5 8.8 n.a. n.a. n.a. n.a. 0.0 0.0 7 East Texas 4 2,550 8 Central Texas 9 3,511 1.6 12.5 9 Coastal Texas n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 11 Trans-Pecos and Edwards Plateau 9 3,017 2.7 –1.0 12 Southern New Mexico 6 2,575 11.6 –4.7 13 Northern Louisiana 8 2,700 5.2 11.1 123 111 1,509 1,804 1.8 1.9 5.6 6.0 10 South Texas Ranchland District XXSummer monsoon rains in the region have resulted in improved conditions on most rangeland, with some areas in excellent condition headed into the fall and winter. Replacement stocker cattle remain very expensive and scarce, and considerable uncertainty remains regarding moisture predictions, dampening optimism for purchasing high-value replacements. Hay markets have declined somewhat, with large alfalfa bales selling for around $230 per ton and small bales for $285 to $300 per ton. Demand for other hay forage crops is also down some. Corn harvest is well under way, with steady demand and good prices. 1.8 67 6 North Central Texas Region 12 • Southern New Mexico XXGood rains in July and some in August kept some ranchers from liquidating total herds. Continued rain and winter moisture are still needed. Topsoil erosion is inhibiting regermination of some grass seed. 2,061 Texas 1 Northern High Plains Texas 1 Northern High Plains 13 531 –1.2 9.9 2 Southern High Plains 8 631 3.3 7.3 3 Northern Low Plains 6 904 2.7 3.3 4 Southern Low Plains 6 1,075 0.0 5.7 5 Cross Timbers 12 1,792 0.4 4.8 6 North Central Texas 18 2,314 –5.1 –2.5 7 East Texas 14 2,607 0.0 –4.4 8 Central Texas 14 3,418 3.4 7.4 9 Coastal Texas n.a. n.a. n.a. n.a. 4.5 10 South Texas 3 1,933 0.0 15 1,870 2.1 6.4 12 Southern New Mexico 5 250 –2.4 –10.7 13 Northern Louisiana 7 1,514 3.4 11.7 11 Trans-Pecos and Edwards Plateau Number of banks reporting land values. Prices are dollars per acre, not adjusted for inflation. 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 2 3 Agricultural Survey • Third Quarter 2013 • Federal Reserve Bank of Dallas Real Land Values Real Cash Rents 2005 dollars per acre 2005 dollars per acre per year 120 2,200 2,000 Irrigated 1,800 1,600 100 Ranchland 1,400 80 Dryland 1,200 Irrigated 60 1,000 800 Dryland 40 600 400 20 Ranchland 200 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Long-term farm real estate Intermediate term Other farm operating 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Anticipated Farmland Values, Income and Credit Standards Interest Rates by Loan Type Feeder cattle 0 Fixed (average rate, percent) 2012:Q3 6.56 6.55 6.51 6.23 Q4 6.37 6.47 6.32 6.19 2013:Q1 6.43 6.53 6.30 6.12 Q2 6.21 6.39 6.22 6.01 Q3 6.16 6.34 6.25 6.04 What trend in farmland values do you expect in your area in the next three months? Percent reporting, Q3 Index* Anticipated trend in farmland values 2013:Q2 2013:Q3 pUp Stable qDown 9.6 10.9 12.9 85.0 2.0 What change occurred in farm income for farmers and ranchers in your area in the past three months compared with a year earlier?† Farm income –14.6 –4.1 17.8 60.3 21.9 What change occurred in credit standards for agricultural loans at your bank in the past three months compared with a year earlier?† Credit standards 2013:Q2 2013:Q3 pTightened Same qLoosened 6.5 4.7 6.1 92.6 1.4 Index 50 40 30 Credit standards † 20 Variable (average rate, percent) 2012:Q3 6.04 6.09 6.05 5.69 Q4 5.83 5.93 5.94 5.62 2013:Q1 5.87 5.98 5.84 5.57 Q2 5.81 5.94 5.80 5.47 Q3 5.71 5.81 5.71 5.47 10 0 –10 Farm income† Anticipated trend in farmland values –20 –30 –40 –50 2010 2011 *See note on bottom of page 1. † Added to survey in second quarter 2011. Agricultural Survey • Third Quarter 2013 • Federal Reserve Bank of Dallas 2012 2013 Third Quarter 2013 DALLASFED Agricultural Survey Special Report Commodities and Drought Commodities The survey also asked how recent movements in commodity prices have impacted agricultural and credit conditions, including the types of commodities grown. Higher commodity prices were reported as benefiting producers. However, respondents stated that expenses have followed prices, and while impacts on credit varied from region to region, credit conditions were largely not impacted. An increase in corn prices, in particular, increased the corn acres planted this year. The following pages display a graphical representation, by region, of the data gathered in this commodities survey, along with the comments received. As part of the third-quarter Agricultural Survey, Eleventh District bankers were asked to list agricultural commodities produced in their lending region. Cattle was the most widespread response, followed by hay, with more than 85 percent of respondents reporting production of these commodities in their region. A great majority of bankers also noted that wheat and cotton are grown in their area. Production of corn and sorghum were also listed by more than half of the respondents. The survey asked Eleventh District bankers to rank the top three commodities produced in their lending region. Rankings have changed slightly from 2011. While cattle held the number one spot, corn is now the second-leading commodity in the district in terms of importance, replacing 2011’s second-ranked cotton. Sorghum has increased in importance, as has dairy. Poultry and soybeans have decreased in importance over the past two years, according to survey responses. Bankers were asked to highlight any changes in the types of agricultural commodities produced in their region. Most notable was a shift from cotton to grains, particularly corn. Higher grain prices were cited as the driver of this change. Respondents also noted a decrease in cattle numbers, largely due to continued drought conditions. Bankers in the North Central Texas region reported that more sunflowers are being grown. Drought As part of this quarter’s commodity survey, respondents were asked about the impact of the current drought on agricultural and credit conditions in their region. Most agriculture producers have been severely affected. The livestock industry has been hit hard; poor grazing conditions and the high cost of feed have caused ranchers to decrease inventory or liquidate their herds. Drought has increased the costs of production on both dryland and irrigated cropland as well as reduced crop yields. Several bankers noted that farmers are reliant on crop insurance to cover expenses. There were scattered reports of decreased loan demand. Eleventh District Agricultural Commodities, 2013 (percent of respondents reporting production of commodities in their area) Percent 100 90 80 70 60 50 40 30 20 10 s uit ca n Pe Fr s oe s tat ble Po eta Ri ce Ve g gs Ho gs Eg y ltr y ts er Po u rs Nu an u Pe ow er s s nfl be Oa ts an Su or So y ats go iry Da ee p Sh es rs Ho m hu n rg So n Co r at y tto Co he W Ha Ca ttl e 0 Agricultural Survey • Third Quarter 2013 • Federal Reserve Bank of Dallas Commodities and Drought Special Report Agricultural Commodity Ranking in the Eleventh District (as reported by responding banks, third quarter 2013 and 2011)* Ranked No. 1 Ranked No. 2 Ranked No. 3 All Regions Percent 100 90 80 70 60 50 40 30 20 10 r he Ot s ble eta Ve g rs er y s Nu oe ts Oa tat Po s ow er gs Su nfl Ho gs Eg uit rs Ho Fr es ce Ri ns ea yb ats go or Sh ee p So s ut an Pe ry iry ult Po rg So Da m hu y Ha at he W n tto Co Co ttl Ca rn ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 ’13 ’11 e 0 NOTE: “Other” includes pecans, rye/barley and sesame. Region 1—Northern High Plains Region 2—Southern High Plains Percent Percent 100 90 80 70 60 50 40 30 20 10 0 100 90 80 70 60 50 40 30 20 10 0 ’13 ’11 Cattle ’13 ’11 Corn ’13 ’11 Wheat ’13 ’11 Cotton ’13 ’11 Dairy ’13 ’11 Cotton ’13 ’11 Sorghum ’13 ’11 Peanuts Region 3—Northern Low Plains Region 4—Southern Low Plains Percent Percent 100 90 80 70 60 50 40 30 20 10 0 100 90 80 70 60 50 40 30 20 10 0 ’13 ’11 Cattle ’13 ’11 Cotton ’13 ’11 Wheat ’13 ’11 Peanuts ’13 ’11 Hay *Data for Region 10—South Texas have not been reported due to insufficient responses. Agricultural Survey • Third Quarter 2013 • Federal Reserve Bank of Dallas ’13 ’11 Wheat ’13 ’11 Cattle ’13 ’11 Cotton ’13 ’11 Cattle ’13 ’11 Hay ’13 ’11 Corn ’13 ’11 Sheep or goats Region 5—Cross Timbers Region 6—North Central Texas Percent Percent 100 90 80 70 60 50 40 30 20 10 0 100 90 80 70 60 50 40 30 20 10 0 ’13 ’11 Cattle ’13 ’11 Wheat ’13 ’11 Hay ’13 ’11 Dairy ’13 ’11 Cotton ’13 ’11 Cattle ’13 ’11 Corn Region 7—East Texas Region 8—Central Texas Percent Percent 100 90 80 70 60 50 40 30 20 10 0 100 90 80 70 60 50 40 30 20 10 0 ’13 ’11 Cattle ’13 ’11 Poultry ’13 ’11 Hay ’13 ’11 Dairy ’13 ’11 Cotton ’13 ’11 Cattle ’13 ’11 Corn ’13 ’11 Wheat ’13 ’11 Cotton ’13 ’11 Sorghum ’13 ’13 ’11 Cotton ’13 ’11 Poultry ’11 Hay Region 9—Coastal Texas Region 11—Trans-Pecos and Edwards Plateau Percent Percent 100 90 80 70 60 50 40 30 20 10 0 100 90 80 70 60 50 40 30 20 10 0 ’13 ’11 Corn ’13 ’11 Cotton ’13 ’11 Sorghum ’13 ’11 Cattle ’13 ’11 Rice ’13 ’11 Cattle ’13 ’11 Sheep or goats ’13 ’11 Hay Region 12—Southern New Mexico Region 13—Northern Louisiana Percent Percent 100 90 80 70 60 50 40 30 20 10 0 100 90 80 70 60 50 40 30 20 10 0 ’13 ’11 Cattle ’13 ’11 Hay ’13 ’11 Wheat ’13 ’11 Corn ’13 ’11 Dairy ’13 ’11 Corn ’13 ’11 Soybeans ’13 ’11 Wheat ’13 ’11 Cotton ’13 ’11 Wheat ’13 ’11 Cotton ’13 ’11 Cattle Agricultural Survey • Third Quarter 2013 • Federal Reserve Bank of Dallas Special Report Commodities QUESTION: Over the past two years, have there been changes in the types of agricultural commodities grown in your region? If so, please explain. Region 1 • Northern High Plains XXWater management has been one of the largest factors in crop planning. Two years ago, many of our customers went to less waterreliant crops instead of corn, mostly cotton. Commodity prices this year drove most of them back to corn. XXLess wheat has been grown due to drought. XXFormerly, peanuts were a major crop in our area. Because of damage caused by feral hogs, farmers abandoned peanuts five years ago. Due to the necessity of rotation, peanuts are making a small comeback. If the harvest is successful, more will be planted in the future. XXAdditional cotton and sorghum acres have been planted as the water table has dropped. Region 2 • Southern High Plains XXCotton is still the No. 1 crop, but later moisture this year has allowed producers to plant more grains. XXSome more grain was planted in 2013 due to the prices. XXCorn acres have been reduced, replaced by cotton and wheat, as a result of the drought and decreasing irrigation supplies. Some farms have reduced the amount of total planted acres due to the drought and irrigation supplies. XXWith irrigation water diminishing due to heavy usage and continuing drought conditions, producers have cut back on cotton in some cases and planted grains due to the price. XXCoarse grains have been increasing in popu- larity due to markets and new water management practices. XXRepeated failures of nonirrigated crops have forced the majority of farmers in the region to plant a secondary crop in an attempt to recapture lost cash flow from the primary crop. We have seen a number of producers replanting guar, haygrazer and sunflowers as secondary crops, mostly on failed cotton acres. Region 3 • Northern Low Plains XXA small acreage of corn is being grown under irrigation. XXWater issues have caused producers to plant fewer irrigated acres or go to a half circle of cotton or peanuts and reserve a half circle for wheat. Reduced cattle numbers because of drought are giving way to more dryland acres Commodities and Drought in cotton, peanuts, wheat and milo, which are eligible for crop insurance coverage. Hay is being sold instead of used on the farm. XXWe have less of all types of commodities due to extended drought. Region 4 • Southern Low Plains XXFarmers have started planting corn on their irrigated land by splitting circles half corn and half cotton. Corn has become a very likeable rotation with cotton, grossing larger sums per acre than other rotational crops such as wheat or milo. XXWe continue to have primarily dryland cotton in our area, wheat for grazing and grain, and haygrazer for cattle feed. Region 6 • North Central Texas XXCotton acreage has been reduced due to the price difference between cotton and grain. Beef cattle numbers have been reduced due to liquidation during recent and ongoing droughts. XXCow-calf operations and milk production are still the main agricultural productions in the area along with hay production for these operations. XXMore sunflowers have been planted, which is unusual for this area. Cattle has been the main commodity for many years and remains so. XXCrop insurance has increased the planted acres of corn and wheat. This has taken some acres that used to be grazed by cattle. XXCotton acres were certainly down this year, because of the price relative to grain prices. XXMany farmers have moved to less-volatile crops such as sunflowers and milo, away from corn and cotton. The cattle operations have changed from stockers to cow-calf. XXSunflowers were added in 2013. XXReduced soybeans and cotton were replaced by sunflowers. Region 7 • East Texas Region 9 • Coastal Texas XXThere has been a shift from cotton to grain, mainly corn, due to commodity pricing. Looking to 2014, the cycle will be shifting back to cotton. XXThere has been a significant decline in rice production due to the continued drought and lack of irrigation water. Region 11 • Trans-Pecos and Edwards Plateau XXA few people grew peanuts when the price was better, but no farmers planted any this year. XXOur customers with irrigation are growing more corn for grain and silage. XXWe have decreasing numbers of sheep, particularly wooled sheep. Wooled sheep are being replaced by or bred into hair sheep to lower labor costs and increase efficiency; hair sheep require no shearing, have greater natural resistance to parasites and have increased average offspring due to faster growth and rebreeding. XXThe drought has greatly affected cattle numbers. Most ranchers have cut numbers to help control feed costs. Lack of rain has also reduced available hay and grains for feeding. Region 12 • Southern New Mexico XXWe have seen a big increase in alfalfa production. Many ranchers are selling off their cattle currently and letting their land heal. The little rain we have received helped a lot. XXVery little has been grown due to drought. Some stands of alfalfa that were still viable two years ago are now past the point of being revived, but it is anticipated that they will be reestablished when moisture permits. XXDairies have not been able to maintain a profit margin and have been forced to close their operations permanently. Region 13 • Northern Louisiana XXCotton acreage has decreased by about 30 percent because of price. Acreage was made up in corn and milo. XXWe have more corn, soybeans and wheat, with XXOur area is producing less dairy and more poultry. input risk and price. XXDairy is on the decease. Region 8 • Central Texas XXChanges in acreage planted have been among the three basic crops of cotton, sorghum and corn. XXOur area had strong cow-calf operations but is changing to horses, hay, wild flowers and bees for agriculture exemption for real estate taxes. XXWe have two new vineyards that opened in the area as well as two new olive oil ranches. Agricultural Survey • Third Quarter 2013 • Federal Reserve Bank of Dallas less cotton. XXThere is less cotton due to margin of return, XXOver the past several years, there has been a movement away from cotton to corn. Very few acres of cotton remain in the area. Soybeans are getting more popular as the price of corn falls and the price of soybeans remains high and stable. Corn remains the major crop in the area. XXThere has been a decrease in cotton acres and an increase in grain acres. QUESTION: How have recent movements in commodity prices impacted agricultural and credit conditions in your region, including the types of agricultural commodities grown? Please explain. Region 1 • Northern High Plains XXGrain prices are not down drastically and are still good enough for farmers to make a little money. Cow-calf operations are OK, but feedlot cattle are taking losses. XXCommodity prices have driven most of the farmers back to corn from cotton this year. XXThere have not been any significant price movements within this year’s growing season. XXRecent movements have not yet impacted the types of commodities grown. XXConservation Reserve Program land continues to be brought back into production with additional wells being developed for irrigation purposes. While corn prices are somewhat lower, very few producers have contracted at this time, and crops look good, considering our dry conditions. XXThere has not been much change this crop production cycle, but we could see plan changes for next year. XXCorn prices have dropped for the first time in three years but will still cover expenses. Cattle prices have climbed, but cattle play a less significant role in our lending area. Region 2 • Southern High Plains XXCommodity price changes have not made much difference because we have had little to no crop for the last three years. XXPrices have caused a slight increase in grains planted for 2013. XXFewer crop acres have been planted. Com- modities requiring more water to grow—such as corn, potatoes and peanuts—have been replaced with crops requiring less water to grow—such as cotton, wheat, sunflowers and sorghum. XXGrain prices at the end of 2012 and the beginning of 2013 have caused more producers to grow grains because they could contract the commodity. XXAs coarse grain markets went up, there was a lot of substitution from cotton. Also, as underground water has dwindled, farmers have switched to half circles of irrigated grains to increase economic returns and have put the other half circle in dryland cotton. Because of drought, the cotton was reliant on insurance, which produced better returns than full circles of cotton would have. XXPlanting intentions are established by the customer primarily based on contracted prices for different commodities if available, and futures pricing. Depending on irrigation capacity, our farmers have been planting the crop that projects the most cash flow. This has resulted in prudent crop rotation practices being ignored, which is a concern over time. For nonirrigated farmland, the producer is making the choice of what to plant based on the highest return when the net multi-peril crop insurance projections are calculated. We are basically assuming all nonirrigated acres will fail since that has been the overall trend the past few years. Region 3 • Northern Low Plains XXA small number of producers have attempted to grow irrigated corn because the spring price was relatively high. Historically, corn has not been successful due to the large amount of water required to produce a high-yielding crop. With the decline of grain prices, we anticipate that this will not be an ongoing crop for this county. XXHigher cattle prices have somewhat affected credit conditions in our region. XXPrices have been good for our main commodities of cotton, peanuts, cattle and wheat. Because of high corn prices, we have seen more grain sorghum and corn grown. However, the increased costs of seed, fertilizer and other inputs have offset the higher prices. Cash flow projections would have been negative for a good percentage of producers if government payments had not been extended. XXCattle prices are still strong, so credit conditions have not been impacted too severely by the drought. Region 6 • North Central Texas XXCorn has increased in importance and cotton has declined in importance due to the price of grain, but there have been no real changes in credit conditions. XXCattle prices have encouraged local ranchers to market their calf crop earlier and liquidate nonproducing cow inventories, creating additional funds for debt servicing. Loan requests for operations and purchase of livestock have slowed. XXCattle is the primary commodity in our area, and since prices have been good for several years, the impact has been positive. XXLess cotton was planted this year because corn prices were better last year; however, this year cotton prices are better while corn prices are down some. Input prices go up with the grain price but do not come back down when grain prices come down. Cattle prices remain high. XXLess cotton has been planted. XXProducers have moved to more drought- resistant crops. The majority of farmers switched to sunflowers and milo this year after anticipating a continuation of drought conditions. XXMore corn was planted in this area this year because the price last year was high due to the drought in the Midwest. XXBecause of drought conditions and insurance indemnities tied to commodity prices that have dropped off for wheat, farmers’ guaranteed incomes have dropped, making it harder to obtain operating loans. XXWe have seen increased prices for the types of XXWe have not noticed much change due to commodity prices because we do not have many choices as to what crops work here. Region 7 • East Texas Region 4 • Southern Low Plains XXHigher cotton prices have increased the acreage going to cotton each year, and the increased cattle prices have increased the volume of stocker cattle in the area as well as the amount of wheat acres. XXFor the most part, commodity prices have been favorable to us. Region 5 • Cross Timbers XXCommodity price changes have not af- fected our credit decisions. Many farmers have changed their crop production to reap the benefits of increased prices. However, expenses have followed suit with this increase, which has offset large increases in net income. XXDrought conditions have caused wheat prices to be a non-issue as few farmers were able to harvest. crops sold in our area. XXCorn prices are lower, affecting the return per acre. XXDue to higher commodity prices, lending needs have expanded throughout our communities, causing an increase in overall demand for agricultural financing. XXCrop loans have been basically unchanged the last few years. More equity up front is needed for cattle loans, both stocker and cow-calf loans, because of the cost of cattle. XXDairy operators have had to adjust their feed mixture to use less corn, which sometimes results in a lower quality feed and lower yields. XXCattle prices have improved the profitability for many producers who are still in the business. XXGrowers have shown increased losses in productions, reflecting negative cash flow; therefore, financial institutions are unable to extend credit to agricultural borrowers. XXHigher prices have helped producers, but we have not seen an increase in lending generally. XXVarying drought conditions have caused those without grass to sell and those with grass to grow. Agricultural Survey • Third Quarter 2013 • Federal Reserve Bank of Dallas Special Report Region 8 • Central Texas XXAs commodity prices have changed, farmers have switched between cotton, corn or sorghum crops. Dry conditions in this area have led to more sorghum being planted because of its drought tolerance. Higher beef cattle prices have caused an increase in livestock sold. XXCattle operators love the higher overall prices but have few cattle to take to market unless they reduce their herds. Expanding herds is costly because replacement animals are expensive and there is no food or water due to continued drought. XXCheaper corn has helped the feedlots. Oil prices still affect fertilizer prices, which remain high. XXBeef prices remain strong. We view the decrease in corn prices as a positive for livestock and egg producers. Region 9 • Coastal Texas XXWith grain prices falling and cotton prices rising, more acres will be in cotton in 2014. Rice production remains neutral. Cattle prices remain strong, but production is neutral. Looking to 2014, with no direct payments received from the government, there is a chance marginal land will come back into rotation and will most likely end up in some type of grain. XXProducers have better margins, which allow for continued growth in their infrastructure. With better cash flow from commodity prices, credit availability is better. Producers have typically farmed the commodities providing the highest returns from their land in terms of crop grown and market pricing. XXFarmers and ranchers who have received timely rains in our area have benefited from increased commodity prices. Region 11 • Trans-Pecos and Edwards Plateau XXThe fall in corn prices has benefited cattle producers. XXRelatively high prices on all agriculture products have been beneficial, particularly when drought has forced a producer to sell. However, high feed prices have made restocking and carrying costs even higher and more difficult to finance. Cattle, sheep and goat prices are near all-time highs, so the average producer has to be very careful of restocking at these high prices, since they may need to liquidate again because of drought. The cattle industry is an industry of price cycles, and this one has lasted longer than most. Most lenders will be very cautious of allowing customers to become too highly leveraged at these high prices. XXWe see some movement from cotton to grain production. Commodities and Drought XXDuring this drought, unlike others, prices remain attractive as ranchers sell offspring. However, operational expenses are also at record levels, making for thin margins. XXProduction and harvesting expenditures for XXCattle, sheep and goat prices remain good. Even with higher feed costs due to drought, producers have been able to reduce debt. XXWinter wheat has been a huge failure for the XXImprovement in prices for hair sheep, coupled with their efficiency over wooled sheep, has increased their numbers. Goat numbers in general remain good, although prices have come down some. Strong cattle prices have driven producers to keep cattle numbers up in spite of drought conditions. General rains in the past oneand-a-half months have led to improved pasture conditions. XXLess grain is being grown because of seed price and soil conditions. The shortage of animal units has also pushed up the cost of replacement units. Region 12 • Southern New Mexico raising a crop cause significantly more money to flow through the local economy than failed crops and receipt of crop insurance as revenue. past three years, This not only negatively affects crop revenues but also winter wheat pastures for cattle grazing. XXDrought has a direct effect on the borrower’s cash flow not only for the specific year but also on the borrower’s average performance. The bank’s projections are based on historical averages. Additionally, insurance guarantees are directly impacted by the borrower’s cash flow and historical performance using historical yields and, as a result, affect the borrower’s loan-to-value ratio. The effect of a drought reaches beyond the specific year. XXNo dryland wheat has been grown, reducing winter pasture for cattle and grain production. Drought has also reduced yields on other farm production. XXCommodity price changes have affected our credit decisions. We also do a very shocking stress test on the borrower’s financials to see what effect a drop in cattle prices will have. XXLower production has been offset by insurance proceeds and higher prices obtained for commodities. XXSo far, the drought has trumped any desires reduction of farmers in this area by greater than 75 percent. The drought is causing substantial reductions in crop insurance payouts. Continued drought threatens continued viability. to respond to commodity price changes. XXThe types of commodities produced have not changed much, but crop mixes on particular farms vary with market changes. XXCommodity price changes have most notably affected the dairy industry. Region 13 • Northern Louisiana XXThe increase in commodity prices has had a positive impact on credit conditions and quality. Many farmers are planting double crops, with soybeans following wheat. XXIf not for crop insurance, there would be a XXDrought has caused cow herd liquidations, greatly reduced grain production yields the past two years and increased costs of production. XXIn 2011, crop insurance kept a floor under farmers’ incomes. Farming practices were adjusted the last two years to lower exposure to less rainfall. Region 2 • Southern High Plains XXCommodity price changes have had a minimal XXWe lost most of our dryland cotton this year. XXThe high prices of soybeans and the falling prices of corn have caused some farmers to switch acres from corn to soybeans. Some farmers feel that the soybean is easier to grow, making it an increasingly favored crop for the region. XXInsurance continues to help offset the bulk of impact on the current crop, but next year’s outlook is starting to look dismal. Drought QUESTION: How has the drought impacted agricultural and credit conditions in your region? Please explain. Region 1 • Northern High Plains XXWe have no dryland wheat crops for 2013. Severe drought has had a drastic impact on grass pasture. Cattlemen reduce herds and buy hay when they can no longer afford to feed cattle on pasture. Agricultural Survey • Third Quarter 2013 • Federal Reserve Bank of Dallas We lost grapes to an early freeze, and we need a late freeze for remaining crops because we are about two full weeks behind our usual growing season due to late planting. expenses but not all of them. More farmers than not have lost equity over the last three years. Another year or two of no moisture would start to have a real impact. Insurance yields are lower, and losses will continue to deepen if we don’t get rain. Additionally, cotton gins have taken a much worse hit in our area. Our county is 90 percent dryland acreage, and no cotton crop has meant no gin work, and the gins don’t have revenue insurance like the producers. XXDrought has almost eliminated any cattle loan requests. XXOur bank’s farm operating loan volume has decreased over the past two years. Crop failures early in the growing season have generated a substantial amount of federal crop insurance proceeds that paid off, or paid down, farm operating loans. Reduced crop acreage harvested has reduced the need for crop inputs also, leading to less farm operating credit needs. The USDA Supplemental Revenue Assistance Payments program was a blessing but also decreased farm credit needs. As a result of the drought, farmers have been more conservative, with fewer capital expenditures. XXIn most cases, we are relying heavily on insur- ance due to the amount of dryland acres. We can still underwrite the loans properly but are really watching what a producer is planning for that crop year. Insurance is vital. XXDrought has caused severe restriction of dryland-grown crops. Limited water in this area has also made irrigated crop production virtually uneconomical. XXDrought has created disaster, which caused many farmers to claim insurance. Some farmers have been positive, as they have gone back with second crops after collecting insurance proceeds. They received rainfall that has made those second crops successful. XXDependency on multi-peril crop insurance and government entitlements has been significant during the last few years due to the drought. Water depletion is a major problem in the area, forcing farmers to convert numerous acres from irrigated to nonirrigated acres, which has compounded the dependency on insurance and government program payments. Loans are evaluated at application primarily utilizing net of premium insurance protection and government entitlements for cash flow purposes, as opposed to using an average of actual production history for yield projections. XXDrought has caused a loss of crops, and therefore lower yields. Region 3 • Northern Low Plains XXDrought conditions affected the livestock industry more than others, causing the liquidation of massive amounts of cows. The local livestock commission closed due to lack of cattle for sale. The number of irrigation wells has increased significantly due to drought conditions; some wells are for new production acreage, but many wells are to supplement the decrease in output of existing wells due to the decline of the water table. Cotton is the dominant crop due to its ability to tolerate dry conditions over peanuts. XXThe drought has negatively impacted agricultural conditions, primarily through lower yields on wheat. Additionally, dry stock tanks have impacted the cow-calf operations in our region. XXThe water table has dropped. Some irriga- tion wells are no longer in service, while others are limited. The cattle producers have been hit hard with the drought. Pasture conditions did not improve much last year, so the stocking rate was still below optimum, reducing cash flow. Pasture leases have to be paid to retain land with limited benefits. Pasture conditions are starting to improve, but the high cost to restock has put up a caution sign. XXDrought has reduced cattle inventory and XXFarmers have had to rely on crop insurance to stay in business. XXHay production is extremely short this year. XXDrought has affected the wheat crop, but insurance helps. We have had a major liquidation of the cow herd and no cotton for two years. Region 4 • Southern Low Plains XXCredit conditions have remained about the same because commodity prices have been at record high levels. XXWe have had cattle liquidated, and most people have not bought replacement cattle. Small to no cotton crops hurt farm-related businesses. Region 5 • Cross Timbers XXThe drought has negatively affected the production of crops in the past. Crop production in 2012 and 2013 was normal, given the limited rainfall. XXDrought forced a reduction in herd size and has reduced production income. Drought conditions have reduced wheat and haygrazer planting and the amount of forage or grain produced, which further limits herd size. Fewer customers are requesting funds to buy livestock. Those who have debt are struggling to cover operating expenses with reduced income. XXDrought has caused a cutback on cattle numbers. XXProducers have reduced their cattle inventories, often significantly. Operating costs have increased as a result of limited wheat grazing and hay production. XXLack of grass has reduced forage and, in turn, cattle numbers; consequently we have fewer cattle loans. Region 6 • North Central Texas XXCattle inventories have decreased with a lack of satisfactory pasture conditions and water supplies. XXWe have had more rain than most areas, so the effects of drought have not been too bad. XXCrop insurance and Supplemental Revenue Assistance Payments program payments have helped producers and lenders greatly. Hay is very expensive. Cattle herds were reduced and now replacement cattle are very expensive. XXDrought has been rough on our producers. The farmers who are strongest financially and most committed are left and are outstanding customers due to their strong financial positions and management skills. caused a shortage of locally grown feed. XXThe drought has certainly had a negative impact. Pasture conditions still aren’t good. Hay is expensive to buy, and yields have been way below average. Ranchers are starting to sell cattle offspring at a lighter weight. Milo yields were much lower than expected due to drought. XXDrought has led to fewer cattle and higher input prices for feed and hay. Producers are fortunate cattle prices were high during the recent droughts. Historically, droughts lead to lower cattle prices due to high numbers of cattle sold. Some estimates put the local cattle numbers at 30 to 50 percent less than a few years ago. XXThis year our farmers were able to take advantage of higher grain and cattle prices that were a result of last summer’s drought in the Midwest. Area farmers had decent wheat and corn crops thanks to some timely rains in our area. XXDrought has had very little effect on local farmers. Region 7 • East Texas XXThe price of hay has increased in dry conditions, causing other expenses to increase as well. XXRow crops were not affected as much as anticipated due to good insurance coverage on borrowers’ behalf. Cattle numbers have been steady for the past 24 months, with only a few complete selloffs reported. Stocker cattle programs have suffered the most. Gains were late as a result of late spring rains. Death losses were much higher than normal due to extended heat last fall. More equity is needed in stocker programs due to the high cost of cattle on the front end. XXThe drought severely impacted the livelihood of our dairy operators. XXMany cattle producers have decided to go out of business due to drought conditions. XXDrought has caused less production and increased feed costs. XXThe drought has caused increased feed and hay prices, thus causing very tight profit margins on our agricultural producers. XXDrought has caused most of our cattle operators to sell out. XXSome people have had to disperse a part of their cattle herds, and the drought has drastically cut hay production. Customers are not interested in borrowing money on cattle until rains increase grass production. XXDrought has reduced cattle numbers, but there have been no impacts on credit conditions. Agricultural Survey • Third Quarter 2013 • Federal Reserve Bank of Dallas Special Report Region 8 • Central Texas XXAverage production yields over the past few Commodities and Drought Region 11 • Trans-Pecos and Edwards Plateau years have fallen, primarily due to the drought. This has impacted credit to marginal producers because of increased credit risk due to lower insurance coverage. XXThe availability of permitted water is tight due to the restrictions of the Edwards Aquifer Authority. XXThe remaining cow-calf operators have sold off in 2011. Stocker operators also took losses in 2011 and 2012, which have hurt their balance sheets. down or out, with few operators able to continue to buy hay year after year for feeding. Row crop operators collected insurance and hope for a good year in the future. XXWe have had to make more loan extensions due to the drought and plan for longer term payouts on cattle. We have also made more agriculture operating loans to help people out in the drought. XXThe drought has made the decision to exit agriculture easier for many older producers, giving rise to more leasable land for other producers. The problem is there is very little to no forage on these acres, and given these conditions, no one has an interest. Region 9 • Coastal Texas XXOur loan volume has declined because of the drought. XXOn average over the past two years, our region received needed rains at critical times to ensure average to above average crops. Further west, down the Texas coast, more severe drought has impacted yields for all row crops. XXThe drought has significantly impacted rice production in our area. Many producers have not been able to plant a crop for two consecutive years due to lack of irrigation water. This has caused a shift to other commodities where soil conditions are suitable, and some acres have been idled. XXRanchers have less income after selling cows XXFrom a credit standpoint, the drought has taken many ranchers out of production, thereby lessening the need for credit on their part. From an agricultural standpoint, the drought has been devastating because many operators have had to sell many of their foundation livestock, and it typically takes several years of continuous feeding, working and handling of new livestock to acclimate them to the protocol of the particular producer. Furthermore, without grass, these new cattle cannot even be purchased at this time. It will take a year or two of good rains to return much of the pastureland to optimum condition. XXOur customers have been forced to sell down their sheep, goat and cattle breeding stock. XXThe majority of ranchers reduced herd size or exited the livestock market, which resulted in agriculture loan decline. In recent months, we have seen signs of expansion; however, loan demand remains soft. There has been no impact on credit availability during the drought. XXPastures are in better condition than last year. Spring rains and rain in July have helped pasture conditions, but they are still suffering from drought. Stock tanks remain low, and the hay crop was below average. Livestock numbers are still down due to dry conditions, and feed costs remain high. Loan demand is down due to dry conditions. XXThe drought has reduced yields on cotton XXDue to drought continuation, numbers of cattle and sheep, particularly, have been cut back by an estimated average of 30 to 50 percent over the last several years. Loan balances are down in general due to selloffs, though credit is readily available for restocking. The drought has increased overall feed budgets, but feed costs remain lower for more-efficient hair sheep than for wooled sheep. XXFeeding expenses have increased because of XXDrought has caused limited grazing, higher livestock market prices and high restocking costs. and sorghum crops; however, crop insurance has covered most cash flow shortfalls and little or no carryover is expected on production loans. Poor pasture conditions have resulted in increased feed expenses for cattle operations, which in some cases will result in longerthan-anticipated repayment terms on cow-calf operations. the drought. DALLASFED XXHerd numbers have been cut in half and in some cases eliminated to ease feeding pressures. Region 12 • Southern New Mexico XXMany ranchers are selling off their cattle or not holding on to them as long as they would like after a purchase. They need more time to let their land heal due to the lack of rain. The drought affects our credit decision process; we know that agricultural losses are very low, but we still have to figure in the additional risk due to the lack of rain. XXProduction of all commodities has significantly decreased due to drought. Credit conditions are stable due to good management of operators. XXCattle prices stayed high, so the impact was not as great as it could have been. Farmers were highly dependent on the insurance payments, and our average irrigation decline at the pump was probably 30 percent in the last three years. XXDrought caused a significant decline in cattle inventory. XXRanches have been so dry that herds have been reduced and replacement heifers not kept. Some ground is being left out of crops because of limited water availability. XXDrought continues to force small operators and those with significant debt to shut down their operations. Region 13 • Northern Louisiana XXWe have had very few effects from drought, because most of the crops in our area are irrigated. However, irrigation costs have risen. XXDrought conditions have increased our need to look at varieties of crops grown, maturity stages and ability to harvest. XXThis has been a good year for growing row crops. Irrigation did not start until late in the season, and because of rainfall across the region, the nonirrigated crops are holding their own against the irrigated crops. It was not until August that irrigation became a necessity. This year’s crop was not as expensive as last year’s. Agricultural Survey is compiled from a survey of Eleventh District agricultural bankers. Data were collected Sep. 3–11, and 149 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 214-922-5254. It is available on the web at www.dallasfed.org/research/agsurvey. For questions, contact Amy Jordan, 214–922–5178. Agricultural Survey • Third Quarter 2013 • Federal Reserve Bank of Dallas Agricultural Survey • Third Quarter 2013 • Federal Reserve Bank of Dallas