Survey: Farm Income, Spending Up; Higher Input Costs Foreshadow Risks Ahead

While first quarter 2013 farm income and capital spending were higher than expected across the Midwest and Mid-South than first quarter 2012, agricultural lenders remained cautious in their expectations for the year ahead amid risks posed by ongoing weakness in the U.S. economy and higher producer input costs, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis.

The survey for the report was conducted from March 15 through March 29, 2013. The results were based on the responses of 55 agricultural banks located within the boundaries of the Eighth Federal Reserve District. The Eighth District comprises all or parts of the following seven Midwest and Mid-South States: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. It is broken into four zones: Little Rock, Louisville, Memphis and St. Louis. For this survey, three questions were added to assess potential change in farm sector risks.

Farm Income

On average, lenders across the District reported higher than expected first quarter income and spending.

“Actual farm income, household spending and outlays for capital expenditures all surpassed expectations of District bankers, as did loan repayment rates,” the report stated.

Using variables based on diffusion index methodology, survey results showed realized income versus expected income was 117 versus 86 for the first quarter of 2013 across the District. (In the diffusion index, 101-200 indicates higher realized income—based on survey responses—than a year ago, while 0-99 indicates lower realized income than a year ago. A value of 100 indicates the same as a year ago.)

Broken down by zone, the diffusion index for realized versus expected income was 120 versus 100 in Little Rock; 100 versus 83 in Louisville; 163 versus 113 in Memphis, and 100 versus 71 in St Louis.

In regard to capital spending across the District in the first quarter, the diffusion index was 128, compared with a previously expected value of 89. By zone, the diffusion index for realized versus expected capital spending was 140 versus 100 in Little Rock; 133 versus 83 in Louisville; 163 versus 100 in Memphis, and 106 compared with 82 in St. Louis. Meanwhile, household spending across the District saw a realized value of 129, compared with an expectations value of 109.

Looking ahead to the second quarter of 2013, lenders indicated they cautiously expected farm income, as well as capital and household spending, to be about the same, or slightly lower, than a year ago.

Farmland Values

Meanwhile, reported quality farmland, ranch and pastureland prices in the Eighth District were down slightly relative to last quarter’s price expectations. However, looking forward into second quarter 2013, lenders expected prices to rise slightly.

“As in our previous three surveys, bankers, on net, expect land values and cash rents to continue rising,” the report said. “However, it appears that banker expectations for future land value increases have moderated somewhat as fewer responses indicate that agricultural land values will continue to climb over the next quarter. Following that trend, bankers have also moderately tempered their short-term expectations for cash rents across the District.”

Lenders estimated that overall District quality farmland prices for the first quarter 2013 decreased by an average 2.3% to $5,111 per acre, compared with fourth quarter 2012. Meanwhile, ranch or pastureland prices decreased by an average of 5.1% to $2,274 per acre. Similarly, cash rents of quality farmland declined an average of 8.6% to $171 per acre, while ranch or pastureland prices fell an average of 4.5% to $120 per acre.

For the second quarter of 2013, lenders expected land values and cash rents to rise, albeit at a more modest pace. Again using diffusion index methodology, the expectations index for three-month growth in quality farmland for the District was 120. By zone, it was 100 in Little Rock, 113 in Louisville, 130 in Memphis and 121 in St. Louis. For ranch and pastureland prices, the average expectations index for three-month growth across the District was 120. By zone, it was 100 in Little Rock, 117 in Louisville, 138 in Memphis and 117 in St. Louis.

Ag Loan Demand And Repayments

Demand for agricultural loans across the District remained generally flat in the first quarter compared with a year ago. By zone, bankers in St. Louis generally reported a decline in loan demand, while those in the Memphis zone reported an increase.

Expectations for loan demand for second quarter 2013 ranged from flat in the Louisville and Memphis zones, to higher demand in the St. Louis and Little Rock zones.

“The availability of funds to lend remains high as all zones other than the Little Rock zones report more lendable funds available this quarter relative to a year ago,” according to the report, which also noted that loan repayments across the District were also higher than a year ago.

Special Questions

Given the severe drought conditions that affected much of Eighth District production in 2012, the survey included three additional questions to gauge what lenders saw as the greatest potential risks ahead in 2013.

The first question, to assess the financial condition of crop producers, revealed that 51% of agricultural lenders indicated a modest-to-significant improvement in the financial condition of crop producers for the District as a whole, while 31% indicated no change and 18%  indicated only modest deterioration. No one observed a significant deterioration. “On net, responses seem to confirm that elevated crop prices and record-level crop insurance payments supported farm income in 2012,” the report stated.

The second question, regarding the financial condition of livestock and poultry producers, showed 21% of lenders reported modest-to-significant improvement from a year ago. Meanwhile, 47% reported no change, while 32% reported modest-to-significant deterioration. “Survey responses seem to confirm that most protein producers (livestock and poultry) are ‘weathering the storm’ of higher input costs, but have not fared as well as crop producers,” according to the report.

The final question asked lenders to select what they considered to be the most significant risk to the farming sector in 2013. The responses revealed that 50% considered the weak economy to be the most serious risk, with 35% citing higher input costs. Only 2% considered higher interest rates to be a significant risk, with another 2% citing a decline in land values. Of the 10% who reported “other,” they cited drought and commodity prices as the most significant. “It appears that a weak economy that potentially limits revenue growth in the farm sector, followed by or along with, a rise in input costs that squeezes profit margins, are the most significant farm sector risks District respondents foresee in 2013,” the report concluded.

Leave a Reply

Management Stories

ManagementWashington Visit and Bayer/Monsanto Deal Update
May 26, 2016
Editors Paul Schrimpf and Eric Sfiligoj discusses a recent trip to DC and the latest news on the proposed pairing Read More
Crop InputsLand O’Lakes Announces Minnesota Water Quality Partnership
May 25, 2016
Governor Mark Dayton and Land O’Lakes, Inc. President and CEO Chris Policinski today announced a new public-private partnership to protect Read More
ManagementAgriculture 3.5: A Bumpy Road Ahead
May 24, 2016
You may have read my article a few years ago on Agriculture 3.0, which is a term I coined to Read More
Southern States Cooperative
Trending Articles
Eric SfiligojPity The Monsanto Haters
May 23, 2016
An old saying goes thus: “Be careful what you wish for. You just might get it.” Given current events, there Read More
Monsanto Luling Plant
Crop InputsReport: Bayer Eyeing Monsanto For Possible Mega-Merger
May 16, 2016
Bayer AG is exploring a potential bid for U.S. competitor Monsanto Co. in a deal that would create the world’s Read More
Aerial Drone
Precision AgA Deeper Dive Into The Future Of Precision Ag
May 9, 2016
For about two decades now, through the good and the bad times, the ups and the downs inherent in agriculture, Read More
Palmer amaranth in soybean stubble
HerbicidesWSSA: Billions In Potential Economic Losses From Uncontrolled Weeds
May 4, 2016
What losses would corn and soybean growers experience if they were forced to eliminate herbicides and other control techniques from Read More
Eric SfiligojReasons For Hope In Commodity Prices
May 2, 2016
For many months now, the doomsayers have ruled the day in agriculture. Too much supply with too little demand would Read More
Eric SfiligojMissing The Family Ties In Agriculture
April 25, 2016
By its nature, the agriculture market is cyclical. Up and down cycles come and go with a regular pattern. For Read More
Latest News
ManagementWashington Visit and Bayer/Monsanto Deal Update
May 26, 2016
Editors Paul Schrimpf and Eric Sfiligoj discusses a recent trip to DC and the latest news on the proposed pairing Read More
Fertilizer closeup in hand
Industry NewsVerdesian: Striking A Balance Between Yield & ROI
May 26, 2016
Finely tuned nutrient management plans are helping farmers throughout the U.S. improve nutrient use efficiency, increase return on investment (ROI) Read More
Crop InputsLand O’Lakes Announces Minnesota Water Quality Pa…
May 25, 2016
Governor Mark Dayton and Land O’Lakes, Inc. President and CEO Chris Policinski today announced a new public-private partnership to protect Read More
Soybean Plant closeup
Industry NewsMonsanto Rejects Bayer Bid; Open To More Talks
May 25, 2016
Monsanto Co, the world’s largest seed company, turned down Bayer AG’s $62 billion acquisition bid as “incomplete and financially inadequate” Read More
Corn close up
Crop InputsArysta LifeScience Establishes Global Headquarters In R…
May 25, 2016
Arysta LifeScience has announced plans to relocate its global headquarters from West Palm Beach, FL, to Cary, NC, over the Read More
fertilizer blending and storage, Top 100
BlendersCHS Dakota Expansion Features AGCO’s GSI InterSys…
May 25, 2016
The continued growth of precision agriculture has increased farmer use of customized fertilizer blends best-suited for their soil conditions. Several Read More
ManagementAgriculture 3.5: A Bumpy Road Ahead
May 24, 2016
You may have read my article a few years ago on Agriculture 3.0, which is a term I coined to Read More
Topcon’s X30 display with CropSpec sensors
EquipmentGPS Autosteer Systems: Product Updates From Precision A…
May 24, 2016
Throughout 2015 GPS Steering solutions continued to evolve from what was once an after-market add on, to today’s cab where Read More
Trimble TMX-2050 In-Cab Display
Eric SfiligojThe Precision Ag Revolution Continues
May 24, 2016
It’s funny how much “the first time” tends to mean to someone as they get older. I sometimes can’t recall Read More
Eric Wintemute, AMVAC
Precision AgAMVAC Ups The Ante With New Precision Ag Technology
May 24, 2016
A potentially industry-changing at-plant soil treatment system from American Vanguard Corp., or AMVAC, is coming soon to large growers in Read More
Dry and Liquid Plant
CropLife 100CropLife 100 Map
May 24, 2016
The new CropLife 100 map shows the locations of each of the headquarters of the 2015 CropLife 100 retailers. The interactive Read More
Southern States Cooperative
Corn Field
Industry NewsTiger-Sul Names Veteran Account Manager To Lead Central…
May 23, 2016
With the continuing growth of the sulphur bentonite and precision crop nutrient industry, global agriculture firm H.J. Baker has announced that Read More
Bayer sign
Industry NewsReuters: Bayer Defies Critics With $62 Billion Monsanto…
May 23, 2016
German drugs and crop chemicals group Bayer has offered to buy U.S. seeds company Monsanto for $62 billion in cash, Read More
Eric SfiligojPity The Monsanto Haters
May 23, 2016
An old saying goes thus: “Be careful what you wish for. You just might get it.” Given current events, there Read More
Industry NewsCompass Minerals Hires Industry Veteran To Lead Plant N…
May 19, 2016
Compass Minerals has hired plant nutrition industry veteran Vatren Jurin to steer the company’s portfolio expansion into specialty liquid micronutrient Read More
ASMARK Retailers LIVE! Tour 2016 Group shot The Andersons
CropLife 100The Andersons Rejects Unsolicited Proposal From HC2
May 19, 2016
The Andersons, Inc. has announced that its Board of Directors has rejected two non-binding, highly conditional, unsolicited proposals from HC2 Read More
glyphosate
Crop InputsWHO: Glyphosate ‘Unlikely’ To Cause Cancer
May 16, 2016
Via Reuters.com reporter Kate Kelland: The weed-killing pesticide glyphosate, made by Monsanto and widely used in agriculture and by gardeners, Read More