Full text of Agricultural Survey : Third Quarter 2015
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Third Quarter 2015 DALLASFED Agricultural Survey Quarterly Survey of Agricultural Credit Conditions in the Eleventh Federal Reserve District Survey Highlights B ankers responding to the thirdquarter survey reported that after their regions received beneficial rains in the spring, limited rainfall and a return of drought conditions in some areas in the third quarter damped outlooks. Low commodity prices have created profitability concerns, and respondents expect price pressures will result in lower farm incomes. Bankers in a couple of regions noted that crops and pastures were in good condition after rain earlier in the year and that crop yields are average to above average. District dryland was the only land type to see increased values this quarter. Real dryland values were up 1 percent over last quarter, while real land values decreased for irrigated cropland (3 percent) and ranchland (7 percent). The index for the anticipated trend in farmland values moved negative again in the third quarter, indicating bankers expect farmland values to head lower next quarter. The credit standards index indicated continued tightening of standards, although the vast majority of respondents noted no change. Demand for agricultural loans increased this quarter but at a slower pace than in the second quarter. Loan repayment rates continued to slow this quarter, while loan renewals and extensions were unchanged on balance. Overall, the volume of loans was up compared with a year ago. “Operating loans” was the only category to increase in volume year over year this quarter. 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, Q3 2015:Q2 2015:Q3 pGreater Same qLess Demand for loans* 14.3 2.3 20.5 61.3 18.2 Availability of funds* 16.5 14.7 17.8 79.1 3.1 Rate of loan repayment –6.4 –4.7 5.5 84.3 10.2 7.9 0.0 9.6 80.8 9.6 Loan renewals or extensions Index 50 Availability of funds* 40 30 Rate of loan repayment 20 10 0 –10 Loan renewals or extensions –20 –30 Demand for loans* –40 –50 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 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, Q3 2015:Q2 2015:Q3 pGreater Same qLess 4.6 3.2 19.4 64.5 16.1 Feeder cattle loans* 11.6 –7.2 9.9 73.0 17.1 Dairy loans* –8.0 –13.9 2.8 80.5 16.7 Crop storage loans* –3.2 –7.1 4.4 84.1 11.5 Operating loans 15.6 17.6 28.0 61.6 10.4 Farm machinery loans* –17.8 –11.8 9.8 68.6 21.6 Farm real estate loans* –8.7 –10.1 9.8 70.3 19.9 Non-real-estate farm 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 XXIncreased rainfall has provided good pasture and promising crops, but lower grain and livestock prices will result in lower producer incomes. XXSummer grazing conditions have been better than in any year in recent memory. Summer crops have the potential to produce well-above-average yields. Low commodity prices will limit profitability in spite of production potential. Region 2 • Southern High Plains XXGood, slow soaking rain would help now for cotton, sorghum and pastures. We are hoping for a late freeze. XXMost of the South Plains missed mean- ingful rainfall in August when the dryland cotton crop really could have used it. Crops overall are rated average. Weeds have been horrible and costly to control. Crop prices are weak, so it looks like most producers will do well to break even this year. Grazing has been excellent. Cattle feeders are losing a lot of money from overpriced feeder placements. Region 3 • Northern Low Plains XXBased on current commodity prices, many producers will have additional equity in their operations. This will reduce highly leveraged borrowers in the market. XXThe low commodity price outlook is making profit projections weak. Crop and pasture conditions are good, although the cotton crop is late due to delayed planting. Region 4 • Southern Low Plains XXMost farmers will experience a decline in net equity this year. Region 5 • Cross Timbers XXLimited rainfall in the third quarter has put us in a poor position to get winter 2 wheat ground ready for planting. Those who plowed immediately after harvest or graze-out are OK, but those just now trying to plow are finding it difficult. 12 N E W M E X I C O Regions of the Eleventh Federal Reserve District XXAfter a wet spring, we have not had a drop of moisture in 60-plus days. We must receive rain for wheat to be sowed. Region 6 • North Central Texas XXCrop yields are worse than expected due to excessive rain in May and drought in July and August. This, combined with very low commodity prices, is causing some farmers to struggle to meet their loan obligations this fall. Crop insurance is of little help. The average yield across all farms is just high enough to either disqualify producers for crop insurance or qualify for very small payments. XXHeavy rains in April and May ruined crops, so insurance claims will be larger than normal. XXToo much early rain and now drought, low grain prices and lack of program payments don’t bode well. Region 8 • Central Texas XXDrought conditions are worsening, and some calves are being sold earlier than normal at lighter weights just to get them off the cows. Although there is some grass in pastures, it has dried up and will not last long without adequate rainfall. XXDrought continues to slow things down, but Gulf Coast storms are starting to bring small rain showers to certain areas. The corn harvest is almost complete, while cotton will start in two more weeks. Cattle prices have fallen pretty hard over the past month, with most sale barns reporting less cattle coming in than last year. Winter oats and rye grass do not look too promising at this time, with most people having to carry over and others not wanting to purchase calves to put on oats. Some people are keeping back heifers as well. XXCattle prices are down a little compared with last year. Region 9 • Coastal Texas XXExcessive moisture early on affected the wheat harvest and cotton and grain plantings. Farmers who were able to plant were three to four weeks behind schedule, and some were prevented from planting cotton. Cotton and grains have yielded average to above average. Cattle prices have slipped in the area from the highs of 2014. Overall, cattle producers have been able to capitalize on the benefits of an upside market, good rainfalls and reduced inputs. Land values have remained stable, with some increases in holding periods, but it is an opportunity for producers to purchase. Most prior sales had been investor related and, with the slowdown in oilfield income, investment purchases have also been reduced. Region 11 • Trans-Pecos and Edwards Plateau XXThe region received good moisture in winter and spring; however, the area started drying out during the growing season, so there are still operators who are short on grass. XXLow hay prices decreased farm income this year. A number of hay producers will need to have loans restructured or extended in order to move into the 2016 crop year. XXAlthough spring rains were ample and greatly appreciated, it has been a hot, dry summer with some areas still looking for Agricultural Survey • Third Quarter 2015 • Federal Reserve Bank of Dallas Rural Real Estate Values—Third Quarter 2015 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 13 7 T E X A S 8 101 1,706 4.2 Texas* 1 Northern High Plains 90 11 1,725 875 4.2 8.1 2 Southern High Plains 13 681 3.0 3 Northern Low Plains* 10 834 3.0 4 Southern Low Plains* 9 1,162 14.8 5 Cross Timbers 4 1,363 2.7 13 2,504 4.7 7 East Texas* 4 2,732 2.0 8 Central Texas 13 3,512 4.6 9 Coastal Texas 4 2,263 3.4 6 North Central Texas 9 10 10 South Texas n.a. n.a. n.a. 11 Trans-Pecos and Edwards Plateau 7 1,279 –0.8 12 Southern New Mexico 3 8 333 2,425 –5.9 8.5 13 Northern Louisiana moisture. Commodity prices are holding strong, but the cattle market may be weakening just a bit while remaining at historic levels. Predators, general economic factors and rainfall levels still make the ag situation a bit dicey in the Edwards Plateau. A good, wet late summer and early fall will cover up a multitude of ills. Region 12 • Southern New Mexico XXThe bank has experienced some decline in feeder cattle loans from borrowers who felt the high feeder market increased risk and projected smaller margins at the point of sale. Some of this drop was offset by other borrowers needing more money to purchase the higher-priced cattle. Cropland—Irrigated District* 71 2,275 2.7 Texas* 1 Northern High Plains 59 1,976 0.8 9 1,750 –3.6 2 Southern High Plains 13 1,621 6.1 3 Northern Low Plains* 7 1,721 4.7 4 Southern Low Plains 7 1,557 7.5 n.a. n.a. n.a. 5 Cross Timbers 6 North Central Texas 3 2,500 –2.6 n.a. n.a. n.a. 8 Central Texas 7 3,729 5.0 9 Coastal Texas 3 2,750 –5.2 n.a. 7 East Texas 10 South Texas n.a. n.a. 11 Trans-Pecos and Edwards Plateau 5 1,660 3.1 12 Southern New Mexico 5 4,000 11.1 13 Northern Louisiana 7 3,443 2.8 112 100 1,595 1,902 1.5 1.6 Ranchland District* Texas* 1 Northern High Plains 8 597 7.7 2 Southern High Plains 9 614 –5.9 3 Northern Low Plains 10 870 2.2 8 1,105 3.3 5 Cross Timbers 6 North Central Texas 7 16 1,671 2,513 2.1 3.4 7 East Texas 10 2,550 1.5 8 Central Texas 13 4,215 –1.0 9 Coastal Texas 3 2,133 –2.3 3 2,517 0.0 13 1,712 3.4 12 Southern New Mexico 4 281 0.0 13 Northern Louisiana 8 1,688 1.6 4 Southern Low Plains* 10 South Texas 11 Trans-Pecos and Edwards Plateau *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 • Third Quarter 2015 • Federal Reserve Bank of Dallas 3 Real Cash Rents Real Land Values 2005 dollars per acre 2,200 2005 dollars per acre per year Irrigated 2005 dollars per acre per year 60 120 2,000 Irrigated 50 1,800 1,600 Ranchland 1,400 1,200 40 Dryland 1,000 100 80 Dryland 30 800 60 20 600 40 Ranchland 400 10 20 200 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 NOTE: All values have been seasonally adjusted. NOTE: All values have been seasonally adjusted. Anticipated Farmland Values and Credit Standards Long-term farm real estate Intermediate term Other farm operating Interest Rates by Loan Type Feeder cattle 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Fixed (average rate, percent) What trend in farmland values do you expect in your area in the next three months? Index Anticipated trend in farmland values* 2015:Q3 pUp Stable qDown 4.1 –1.5 4.8 88.9 6.3 What change occurred in credit standards for agricultural loans at your bank in the past three months compared with a year earlier?† 2015:Q2 2015:Q3 pTightened Same qLoosened 12.2 12.4 13.2 86.1 0.8 Credit standards 2014:Q3 6.12 6.22 6.00 5.80 Q4 6.03 6.14 5.96 5.77 2015:Q1 6.09 6.12 6.01 5.74 Q2 5.93 6.04 5.93 5.74 Q3 6.03 6.16 6.05 5.79 Percent reporting, Q3 2015:Q2 Index 50 40 30 Anticipated trend in farmland values* 20 Credit standards † 10 0 –10 Variable (average rate, percent) 2014:Q3 5.69 5.75 5.64 5.37 Q4 5.65 5.71 5.62 5.39 2015:Q1 5.56 5.66 5.54 5.26 Q2 5.52 5.57 5.51 5.27 Q3 5.65 5.70 5.63 5.36 –20 –30 –40 –50 2011 2012 2013 2014 2015 *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. 4 Agricultural Survey • Third Quarter 2015 • Federal Reserve Bank Dallas Agricultural Survey • Third Quarter 2015 • Federal Reserve Bank ofof Dallas Third Quarter 2015 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. Commodity prices have hurt the profitability of many farmers while positively impacting ranchers, respondents said. In particular, lower cotton prices reduced the cotton acres planted. The effects on credit standards varied across regions. Some regions noted no change in credit conditions, while others reported tightening standards and a decrease in credit quality. 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 80 percent of respondents reporting production of these commodities in their region. A great majority of bankers also noted a presence of wheat and cotton. Production of corn and sorghum were 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 only slightly from 2013, with the top six commodities in 2013 holding their positions in 2015. Soybeans increased in importance, as did the production of sheep or goats. Dairy and poultry 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 away from cotton to grains, sorghum, wheat and corn. However, there were scattered reports of more cotton acres. Changes in crops grown over the past two years were due to commodity prices and the availability of water. Some respondents commented that producers are looking to alternative crops, including grape vineyards. Drought As part of this quarter’s commodity survey, respondents were asked about the alleviation of drought conditions and the impact on agricultural and credit conditions in their region. Most producers have benefited from improved crop yields, but respondents in some regions noted excessive rain damaged crops this year. The livestock sector has also been helped as rains improved pasture conditions, reducing the need for supplemental feeding. Herd replacement is occurring, but some ranchers are limited by high livestock prices. Eleventh District Agricultural Commodities, 2015 (Percent of respondents reporting production of commodities in their area) Percent 100 90 80 70 60 50 40 30 20 10 he rs Ot es ato gs Po t Eg ce Ri uit Fr les tab ltr y Ve ge Po u Ho gs ts er y rs Nu s an u Pe ea n we rs So yb ts iry Da nfl o Su or Oa go ats es rs Ho Sh ee p gh um Co rn So r to n Co t y he at W Ha Ca tt le 0 NOTE: “Others” includes guar, pecans, rapeseed, sesame, sod and timber. Agricultural Survey • Third Quarter 2015 • Federal Reserve Bank of Dallas 5 Commodities and Drought SPECIAL REPORT Agricultural Commodity Ranking in the Eleventh District (As reported by responding banks, third quarter 2015 and 2013)* Ranked No. 1 Ranked No. 2 Ranked No. 3 All Regions Percent 100 90 80 70 60 50 40 30 20 10 he Ot Sh ee Su nfl ow er r s gs Ho uit Eg Fr gs ts Oa es rs Ho s tat oe ce Po ult Po Ri ry s ut an Pe p or Da ea yb iry ats ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 go ns m So hu rg y So Ha at he W n tto Co Co ttl Ca rn ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 ’15 ’13 e 0 NOTE: “Other” includes pecans and timber. 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 ’15 ’13 Cattle ’15 ’13 Corn ’15 ’13 Wheat ’15 ’13 Cotton ’15 ’13 Sorghum ’15 ’13 Cattle ’15 ’13 Corn 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 ’15 ’13 Cattle ’15 ’13 Cotton ’15 ’13 Wheat ’15 ’13 Peanuts ’15 Hay ’13 *Data for Region 10 (South Texas) have not been reported due to insufficient responses. 6 ’15 ’13 Cotton ’15 ’13 Cattle ’15 ’13 Wheat ’15 ’13 Cotton NOTE: Region 4 only ranked four commodities. Agricultural Survey • Third Quarter 2015 • Federal Reserve Bank of Dallas ’15 ’13 Sorghum ’15 ’13 Hay ’15 ’13 Peanuts 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 ’15 ’13 Cattle ’15 Hay ’13 ’15 ’13 Wheat ’15 ’13 Dairy ’15 ’13 Cotton ’15 ’13 Cattle ’15 ’13 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 ’15 ’13 Cattle ’15 Hay ’13 ’15 ’13 Poultry ’15 ’13 Dairy ’15 ’13 Corn ’15 ’13 Cattle ’15 ’13 Corn ’15 ’13 Wheat ’15 ’15 ’15 ’13 Cotton ’13 Hay ’13 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 ’15 ’13 Cotton ’15 ’13 Cattle ’15 ’13 Sorghum ’15 ’13 Corn ’15 ’13 Soybeans ’15 ’13 Cattle ’15 ’13 Sheep or goats ’15 ’13 Cotton 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 ’15 ’13 Cattle ’15 Hay ’13 ’15 ’13 Corn ’15 ’13 Dairy ’15 ’13 Wheat ’15 ’13 Corn ’15 ’13 Soybeans Agricultural Survey • Third Quarter 2015 • Federal Reserve Bank of Dallas ’15 ’13 Cattle ’15 ’13 Hay ’15 ’13 Cotton ’15 ’13 Cotton ’15 ’13 Eggs ’15 ’13 Wheat ’15 ’13 Rice 7 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 XXCotton is not grown as much as it used to be. XXDue to drought, we have seen more hay grown. XXDue to the price of cotton, our acres have declined significantly for 2015. Corn and sorghum acres increased due to the abundant moisture we received this spring. Region 2 • Southern High Plains XXGrape vineyards has been the fastestgrowing type of new crop in our area. XXOur area is still primarily cotton, but some producers have planted more grains. XXDeclining irrigation supplies continue to impact agricultural commodities grown in our area, causing more crop acres to be planted to cotton, wheat and grain sorghum. There is less corn in our area as corn requires significantly more irrigation than other crops. XXThere has been some switching to other crops due to prices and weather. Cotton is the main commodity grown. XXThere have been larger shifts away from cotton. This is based on cost to produce and competing crop market prices making other crops more attractive. XXCorn has surfaced to become an alterna- tive crop as producers seek solutions to declining commodity prices in traditional primary crops grown in the area, including cotton and peanuts. Grape vineyard acreage is on the rise. Decreased water levels have forced producers to look to alternative crops, such as grapes. Water depletion continues to be a great concern. XXMore corn is being planted due to ag programs. XXThe South Plains has a well-established concentration in cotton production, both dryland and irrigated. This crop is better adapted to the semiarid conditions found here. Cotton prices have fallen to unprofitable levels, so acres have declined and switched to corn and grain sorghum. 8 Commodities and Drought Region 3 • Northern Low Plains XXWe have more cotton acres. XXSome dryland acres and farms with limited irrigation have planted grasses or crops for livestock grazing. The price of cattle has been better than the traditional row crops of cotton and peanuts. XXProducers have started growing both sesame and canola to rotate crops due to changes in prices and to fight herbicideresistant weeds. Region 4 • Southern Low Plains XXWe are trying more alternative crops. Region 5 • Cross Timbers XXThere has been some shift away from cotton recently due to depressed prices, but we still have several cotton farmers. No major changes overall. XXA few farmers are trying to grow cotton for the first time in many years, but only a very small amount of acreage is involved. Region 6 • North Central Texas XXThe price to plant cotton has continued to increase each year, while cotton prices have had very little movement up. We see more farmers planting commodities other than cotton. XXThere have been more corn and sor- ghum acres grown, while a reduction in cotton has occurred. Sunflowers had produced sufficient income to warrant it as a rotational crop, but pricing in the past 18 months to two years has reduced that crop. XXCotton has seen a resurgence. Region 7 • East Texas XXCotton acreage has decreased as milo has increased, primarily because of commodity prices. XXMore grain and less cotton acres have been planted. XXThere are less cattle due to ranchers selling out because of the prior drought. Region 8 • Central Texas XXGrapes are starting to be grown as new vineyards are being put in, and several olive tree farms have started. Several farmers’ markets have also tried to be established as well. Region 9 • Coastal Texas XXDue to cotton prices, we have experienced a shift to sorghum. XXWe have more milo and less cotton due exclusively to commodity pricing. XXPrimary changes are in the crop mix, depending on commodity prices. XXDue to forecasted prices for the 2015 crop year, more farmers planted sorghum than cotton. Region 10 • South Texas XXSince the decline of corn prices, there has been a shift to other crops. Region 11 • Trans-Pecos and Edwards Plateau XXSheep and goat production continues to dwindle due to the predator problem. As land in our county and the surrounding counties is bought for recreational use, the land is taken out of production. New landowners are not inclined to cooperate with local ag producers in predator control programs. It becomes more and more difficult to raise goat kids or lambs as a result. Cattle have become the primary commodity. Unfortunately, this area is more suited naturally for sheep and goat production. XXMore farmers are growing sunflowers, more wheat and less cotton. XXHair sheep continue to increasingly replace wooled sheep on ranches. Many producers decreased the percentage of Boer goat influence in their herds to increase heartiness and mothering instinct. XXGrain and cattle prices have increased. Up until this spring, dry range conditions were forcing the reduction of herds. Replacement cattle are pricey and hard to find. Region 12 • Southern New Mexico XXLess cotton has been grown. XXThere have only been minor fluctuations in crops grown from year to year. XXCrops and products have remained pretty consistent in this market over the past two years. XXWe have seen less corn and other crops that require more water. Agricultural Survey • Third Quarter 2015 • Federal Reserve Bank of Dallas XXPrices have made a major impact. Cash Region 13 • Northern Louisiana XXCorn and soybeans have reversed in crop rankings. Cotton is fading away and cattle herds are growing larger in small increments. Sweet potato acreage is stabilizing into a more economically sound crop due to a new sweet potato plant. 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 XXLower commodity prices have negatively impacted profitability, especially for corn and wheat. XXThe drop in corn and other feedstuff prices has had a positive impact on cattle feeders and dairy operators. XXLower commodity prices have put pres- sure on break-even levels and will force changes in crop selections and resource allocations. Operating budgets will be much tighter going into the future. XXLow cotton prices resulted in fewer acres planted. XXCommodity prices have impacted what is grown in this area tremendously. Farmers are always analyzing which crop will make them the best return. Region 2 • Southern High Plains XXWith cotton being a genetic crop under the current farm bill, planted acreage has been shrinking in our area and replaced by peanuts, sorghum and some corn acres. XXWe are heavy in cotton, and the price has negatively affected our producers and their ability to get credit. Margins have declined, and without significant moisture to increase yields, all producers find it hard to achieve positive cash flow. XXWith the low commodity prices in 2015, most farmers will struggle to break even for the year. Agricultural banks will have to tighten credit standards again in 2016 in order to finance producers. Many farmers will be sent to the Farm Service Agency for direct funding until agricultural conditions improve. flows have been extremely difficult to manage even when a producer changes to another crop. This will continue to be a major problem. XXThere is a lot less cotton due to prices, and more cows due to higher feeder cattle prices. XXCotton has always been the primary crop in this area; however, planted acres are down significantly. The market price decline since midyear 2014 has definitely placed a strain on cash flow probabilities for the current crop. Grain sorghum is a break-even alternative at best. Peanuts should produce a small profit, provided we have good weather from now until the crop matures and is harvested. Cattle operations have benefited from the strong market cycle and are in good shape. Watermelon harvest is going well, with prices well above recent years. The established grape vineyards have been harvested and are at the wineries, benefiting from excellent prices due to quality and market conditions. XXCotton market prices have decreased substantially and created a situation where we need a large, if not record, crop to allow farmers to just break even. XXThere is little, if any, profit in current crop prices. It takes good yields just to break even. The consequence is that leveraged borrowers are facing repayment pressures. Many producers are fortunately not excessively leveraged. However, some are and tend to be either young and growth oriented or growers who incurred losses from poor crop insurance coverage plans during the drought. Region 3 • Northern Low Plains Region 4 • Southern Low Plains XXMore wheat was planted instead of cotton due to cotton’s high input cost and low price. XXCredit has tightened, but there have been no changes in commodities grown. Prices in commodities have impacted farmers’ ability to pay. XXThe weakness in commodity prices has tightened cash flow margins drastically. XXCotton prices are putting pressure on farmers’ ability to cash flow all of their obligations. Region 5 • Cross Timbers XXCotton prices have fallen significantly since early 2014. This has compressed margins for cotton farmers in our area and has caused some of them to shift away from cotton in order to remain profitable. XXHigh replacement cattle prices will have an effect on operators’ ability to borrow funds to replace cattle sold due to drought conditions. XXDairies experienced good profits in 2014 due to high milk prices, but these appear to be headed down again. This did not result in a change in the overall demand or availability of credit, nor did it entice any new investors or existing producers to expand. XXThe increase in cattle prices has greatly helped cattlemen reduce debt and hold heifers for restocking. The price of wheat really hasn’t increased significantly in the past 65 years; therefore, most of the wheat is sowed for winter grazing. Region 6 • North Central Texas XXThere has been an increase in heifers held for breeding stock. XXThe decline in commodity prices has XXThis crop season saw fewer corn acres XXLow prices for cotton, peanuts and grains XXPrices during 2015 have been generally not significantly altered the commodities produced but has increased lenders’ awareness of how sensitive cash flow is to changes in commodities prices. have weakened cash flow projections, making it difficult to finance producers. XXAfter the drought and selloff of cattle, currently higher prices have producers working to rebuild herds. Cotton has taken the biggest hit, and acreage has decreased due to uncertain pricing. planted due to future contracts and hedging activities. Based on hedging, more sorghum acres were planted, with adequate yields to verify a better revenue decision. down and have caused a movement away from some corn acreage due to the production costs of corn versus other commodities. XXLower prices have decreased profits. Commodities grown have not changed. XXCow and calf ranchers have had two or three years of good prices, and the trend should last a few more years. Agricultural Survey • Third Quarter 2015 • Federal Reserve Bank of Dallas 9 SPECIAL REPORT Commodities and Drought XXCattle prices have been good. There are a Region 7 • East Texas XXLess cotton acreage, in favor of more milo as opposed to corn, has been planted. XXRecent commodity prices have had little impact on the types of commodities grown as capital requirements limit new borrowers to the industry. Overall credit quality has improved. XXWe have 75 percent less cattle loans. XXProducers planted less corn and more wheat and sorghum because input costs for corn are higher than for other grains. Input costs have not receded as fast as the price per bushel. Region 8 • Central Texas XXCattle prices are still very good, and producers are starting to retain replacements for their herds. Lenders are worried about when cattle prices will decline. XXThe cattle market has improved rancher balance sheets and credit worthiness, leading to the rebuilding of drought-stricken cattle herds and the replacement of old farm equipment. XXSome of our larger cattle operators are requesting increases in their revolving lines of credit to help offset higher purchase prices and feed. Region 9 • Coastal Texas XXLower commodity prices are impacting the ability to zero out operating loans. XXAgricultural credit conditions at this time have remained stable and may change in the future with the decrease in prices. XXWith decreased commodity prices for corn and cotton, cash flow has tightened, which may cause defaults on equipment debt going forward. XXRecent weakness in the commodity market has compressed our producers’ margins, causing credit underwriting to be more difficult. Credit availability remains the same in our area. lot of replacement cattle at this time, but 2016 will see a drop in replacement cattle prices. XXThere has been an increase in the risk as- XXThe recent decline in commodity prices sociated with lending, based on the capital injection it takes to purchase replacements. The volatility of the cattle, sheep and goat market has made it more difficult to lend. XXSome commodity prices have remained high and helped keep many producers in business. XXThe cost of planting cotton has caused a change. Continued high prices received for sheep, goats and cattle have allowed some producers to recover some of their losses in recent years due to drought. Restocking at high prices continues to be a challenge. We have seen no change in credit conditions. XXThe movement in prices in our region has not had much impact other than causing us to require more capital for down payments. As far as crops grown, range conditions dictate what the growers can plant during the seasons. Region 12 • Southern New Mexico XXStocker cattle operators aren’t as aggressive currently. The potential profit margin versus the investment isn’t as palatable as it has been. XXMany farmers in the area are suffering as the price of hay has dropped. This causes customers to have carryovers and issues paying back on their credit lines. XXThere has been more hay grown and a shift away from cotton, and highly leveraged farms are starting to stress for cash flow. XXCattle prices, together with post-drought herd rebuilding, have made replacing cattle numbers difficult, requiring substantial equity in existing cattle and ranch real estate a necessity. Much of the farm and ranch land in this area is somewhat subsidized by oil prices through surface damage payments and mineral royalties. Region 13 • Northern Louisiana XXCredit quality and debt-to-income ratios Region 11 • Trans-Pecos and Edwards Plateau XXThere has been a restocking of rangeland, with increasing cattle prices and ample moisture. have decreased for all borrowers. Commodity prices now determine the acreage makeup of crops grown. has seriously impacted the profitability of many farmers in the region. Drought QUESTION: How has the alleviation of drought conditions impacted agricultural and credit conditions in your region? Please explain. Region 1 • Northern High Plains XXThe crops are doing well with all of the added rain. XXSummer precipitation is back to more normal levels this year. As a result, our native grass pastures are in excellent shape, corn and milo look good, and we have the potential for an early wheat pasture. XXRain this year has resulted in good crop yields. The biggest problem this year is it being too wet to harvest timely. XXImproved range conditions have driven de- mand for replacement cows and pasture cattle. XXWithout the spring moisture we received, this area would have been in big trouble. We’re dry again now, and crops are showing signs of stress, especially dryland and crops with limited irrigation. XXThe alleviation of drought conditions has helped with irrigation costs but has increased chemical expenses due to weed control. Region 2 • Southern High Plains XXIt has given us hope that we can make a good dryland poundage to offset the prior four years of drought, poor insurance coverage and low prices. XXWithout direct U.S. Department of Agri- culture payments or disaster funding, many producers find it hard to produce sufficient cash flow. Higher inputs coupled with drought and reduced or no government payments make credit decisions much more difficult. XXIf it weren’t for the current rainfall conditions over the growing season, it would be a complete disaster. XXWe expect producers to have tighter cash XXIncreased rainfall in 2015 has had a flows, less disposable income and possible crop loan carryovers. We expect it to be 10 a lot more difficult to generate a positive cash flow in the upcoming crop year, especially for the more marginal producers. positive impact on crop production and re- Agricultural Survey • Third Quarter 2015 • Federal Reserve Bank of Dallas ducing irrigation input costs. The negative to this increase in moisture is the increase in weeds, with a large percentage being chemical resistant. Gains from reducing irrigation costs have been wiped out by weed control. Cow–calf operations have benefited the most from drought alleviation, and most of our cattle producers are able to retain some of their offspring to restock a portion of their herds they were forced to sell during the drought. XXMany cotton growers fared better during the drought than they likely will this year. In 2011 and 2012, crop insurance guarantees were based on high prices. Once the crop was failed, expenses were cut and the indemnity resulted in a positive outcome. This year, growing costs have been expensive because plentiful rainfall promoted weed problems and poor cotton prices won’t allow any money to be made. The livestock sector has benefited tremendously from drought relief. Grazing has been excellent, and a lot of hay is being put up. XXRain in 2015 has helped agricultural conditions. However, commodity prices remain low, and many producers will struggle to break even. Region 3 • Northern Low Plains XXOverall pasture conditions have im- proved, but 60 days of rain do not necessarily end a drought; we will need extended rain to fully recover. XXIrrigation expenses have been less, but herbicide and hoeing expenses have been greater than the savings on irrigation. Our bank has tightened lending for cattle by increasing collateral requirements. Machinery and equipment values have also dropped, changing leverage positions. XXDrought alleviation has increased yields, which generates more cash flow and helps debt repayment. Region 4 • Southern Low Plains XXPeople are trying to restock their cattle due to greater availability of grazing. XXDrought conditions caused many people to get out of the cattle-raising business. from growing at the rate they need. Because of low prices, our only saving grace in cotton is yield, which may become realistic this year with higher rainfall amounts. Region 5 • Cross Timbers XXThe huge increase in rainfall this spring helped improve crop yields and pasture for cattle, farmer and rancher profitability and borrower credit conditions overall. XXMost stock tank levels are adequate to full. Forage levels are more than adequate for most operators based on current stocking rates. Numerous operators are increasing their cattle numbers to more efficiently utilize current forage levels. Most operators in our area are replacing their cattle numbers out of cash or by saving their heifer calves. We have had only a few requests for funds to replace livestock. XXThe most important improvements are in the water available in surface ponds and lakes for livestock and wildlife and in pasture conditions for grazing. Hay production has been the best in years, which should lower the cost of wintering cattle. XXWe had nice spring rains to fill stock tanks, but our area lake that supplies water for 175,000 people is only at 35 percent capacity. The rains grew weeds, but now more rains are needed to grow grass and sow wheat. These conditions have greatly helped cattle lending. Region 6 • North Central Texas XXMore commodities per acre created more profits. Region 7 • East Texas XXWe have had more calls for cow–calf purchase loans. XXThe break in the drought has allowed borrowers to be more profitable. XXGrowing conditions are favorable, causing farmers and ranchers to be more optimistic and willing to produce. XXThis spring was very wet, and many producers were not able to do their first cutting of hay. It then turned very dry, and most farmers have only been able to get one cutting of hay, when normally by this time of year they would have three. Region 8 • Central Texas XXThe spring and early summer rains were great, but hay production was hurt. XXWinter and spring rains were excellent. All hay crops have been harvested, but current hot and dry weather conditions are burning the pasture grasses. Rain is needed badly. XXThis year, all crops were a failure or had XXDrought fears will remain with us for a long XXWe have had more demand for cattle XXRanchers are able to rebuild herds and XXDrought impacted our cattleman negatively. Generally, herds were reduced over the past several years due to the lack of grass, and the price of hay increased dramatically, which resulted in reduced livestock numbers. The drought had little effect on overall credit conditions and lending, but it could have inhibited a borrower’s desire to purchase livestock or make other capital purchases. XXProducers have been keeping heifers to very poor yields due to too much rain all at one time. loans since drought conditions subsided. XXWe still have some drought conditions now. XXIn general and over time, drought alleviaXXCattle prices have been very good the last tion will be very favorable to agricultural couple of years, but the cost to restock after a severe drought has hindered producers early summer of 2015 caused a general crop failure for wheat, corn and soybeans. Most farmers engaged in crop production would not be able to survive if it were not for the crop insurance program that most participate in. Cattle production conditions have generally improved as drought conditions have improved. and credit conditions. However, excess rainfall and flooding during the spring and time to come. Expansion will be slow until we get a more stabilized weather pattern. strengthen balance sheets. increase their herds. Region 9 • Coastal Texas XXExcess moisture actually had a negative impact on yields for the 2015 year, making it difficult for some operating credit facilities to zero out in a timely fashion. With the increase in the moisture levels and the recent drop in sorghum prices, we may see a more normal planting ratio of cotton and grain in the 2016 crop year. XXCredit conditions improved with the rains received this year. Recent 60-plus days Agricultural Survey • Third Quarter 2015 • Federal Reserve Bank of Dallas 11 SPECIAL REPORT of dry weather have helped the scattered harvesting. XXDrought conditions are still impacting our area. We had some beneficial rains earlier this year, but we continue to have water restrictions. These restrictions have had a significant impact on our rice production. XXOverall, those who were able to plant cotton timely can expect higher yields. However, breaking the drought had unintentional consequences—cold temperatures and continued rainfall caused some farmers to be unable to plant cotton by the due date. Those farmers generally planted sorghum, but additional rains caused water to stand in fields on young plants, reducing yields. Region 10 • South Texas XXMost of our area relies on irrigation for farming, and dryland farming has been virtually nonexistent for a long time. The alleviation of drought conditions has had the greatest impact on cattle pastures. Operators will begin to be able to rebuild herds. It has also helped lessen the strain on the aquifer and cut down on irrigation and operating costs. Commodities and Drought XXWith cattle, goat and sheep prices as high as they are, the welcome rains of spring allowed ranchers in our area to grow some hay to alleviate this fall’s coming feed needs and reduce the costs of feed for the first half of the year, increasing the overall net income picture. XXCustomers had sold off some cattle and sheep that they are now trying to replace. XXRainfall last fall and this spring was good, but our area is in need of rainfall at the present time. Some producers have been restocking but at a slower rate due to high replacement costs. Region 13 • Northern Louisiana XXWe had more problems with the heat rather than the lack of rainfall since the majority of our crops are irrigated, with an abundance of water available. XXThe increase in irrigation availability and drought control has greatly increased the stability of yields on grain crops in the area. Spring rains contributed to excellent yields for dryland crops for 2015, with some farmers’ dryland crops producing a higher yield than irrigated crops. XXEasing of drought conditions has allowed producers to retain some of their raised breeding stock, although high prices have caused many to sell some of the replacements that they would normally keep. Additional grass from rains has allowed some producers to increase cattle numbers. XXSpring rains produced a lot of grass, which is extremely dry right now due to the lack of summer rains and presents an extreme fire hazard. Region 12 • Southern New Mexico XXConsiderably more land has a viable crop Region 11 • Trans-Pecos and Edwards Plateau growing on it than in the past several years. XXProfit margins are projected to be higher for livestock producers with the reduction of the need for supplemental feed. As a downside, hay producers have experienced decreased quality levels due to rained-on hay. XXCattle prices have been good, but we need rain. Dry land will drive prices down. XXProducers have kept more heifer calves and ewe lambs as a result of improved range conditions. XXSpring rains aided in the mitigation of input costs. However, demand increased in the replacement market, and the price push has limited some smaller operators from purchasing cattle. DALLASFED XXMost of the ranchers in the area are relieved to have drought alleviation and are able to supplement less feed. XXAs the drought breaks, cattle ranchers are beginning to restock, helping drive up the local price. XXNet farm and ranch income is at an all-time high due to lower input costs such as irrigation pumping and supplemental feeding requirements. On the cow–calf side, debt per cow is increasing on many ranches due to the high cost of replacing herds that were somewhat liquidated during the drought. Agricultural Survey is compiled from a survey of Eleventh District agricultural bankers, and data have been seasonally adjusted as necessary. Data were collected Sept. 1–9, 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 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. 12 Agricultural Survey • Third Quarter 2015 • Federal Agricultural Reserve Survey Bank• of Third Dallas Quarter 2015 • Federal Reserve Bank of Dallas