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

StewardshipMichigan Agriculture Leaders On Toledo Water Ban: We Want To Be Part Of The Conversation
August 8, 2014
Leaders of Michigan agricultural organizations said Thursday that the government should not have a “knee-jerk reaction” based on last weekend’s water ban in Toledo due to fertilizer run-off in Lake Erie. Read More
ManagementRussia Bans U.S. And EU Ag Product Imports In Ukraine Sanctions Battle
August 7, 2014
Russian President Vladimir Putin has banned the import of agricultural goods from countries that have imposed sanctions on Russia. Read More
EmployeesAsmark Institute Dedicates New Training Center To Ford West
August 6, 2014
The Asmark Institute plans to recognize the retired industry leader's years of service to the fertilizer industry at the new state-of-the-art facility in Owensboro, KY. Read More
LegislationUSDA: Quick Implementation Of Disaster Assistance Programs A ‘Top Priority’
July 9, 2014
USDA has processed 106,000 payments to farmers in 40 states across the country who suffered livestock and grazing losses between Oct. 2011 and passage of the 2014 Farm Bill. Read More

Trending Articles

MAGIE 2014 ShowStopper
EquipmentJohn Deere Again Wins MAGIE ShowStopper Award
August 25, 2014
For the second consecutive year, John Deere was honored at the Midwest AG Industries Exposition (MAGIE) for its new R4045 sprayer. Read More
ManagementExpert To Discuss Farmland Value, Rent At Farm Science Review
August 18, 2014
While cropland values in Ohio increased in the past two years, they have remained flat in 2014, declining in some cases, according to an Ohio State University agricultural economist. Read More
EquipmentAdvance Your Technology IQ At MAGIE
August 13, 2014
The Midwest AG Industries Exposition (August 20-21) is the place you need to be to see, study and evaluate how new advances in the equipment, operations, crop protection and fertility sectors can help your business prosper. Read More
HerbicidesScouting Key To Next Season’s Soybean Herbicide Program
August 12, 2014
When growing soybeans, growers need to think ahead to stay one step ahead of weeds. That means examining weed threats and evaluating which herbicides work best. Read More
StewardshipMichigan Agriculture Leaders On Toledo Water Ban: We Want To Be Part Of The Conversation
August 8, 2014
Leaders of Michigan agricultural organizations said Thursday that the government should not have a “knee-jerk reaction” based on last weekend’s water ban in Toledo due to fertilizer run-off in Lake Erie. Read More
CropLife 100BRANDT Acquires Lemon Ag Services
August 4, 2014
The acquisition of Lemon Ag fits BRANDT’s aggressive corporate strategy of providing superior agronomic advice and services for customers in central Illinois. Read More

Latest News

Seed/BiotechBerendes Joins Verdesian Board Of Directors
September 2, 2014
Verdesian Life Sciences announced that Robert Berendes has recently joined the company's board of directors. Read More
CropLife 100Pinnacle Acquires East Kansas Chemical
September 2, 2014
Ranked 82nd on the CropLife 100, East Kansas Chemical will operate as part of Pinnacle's Performance Agriculture brand. Read More
WebinarsWebinars On Demand
September 2, 2014
Register for one of our upcoming Webinars or access our archive of past Webinars to view recordings of presentations that may be of interest to you. Read More
CropLife 100Pinnacle Launches Performance Agriculture Brand
September 2, 2014
Performance Agriculture complements Pinnacle’s existing brands, including Sanders, the company’s flagship farm input retail brand. Read More
Webinars5 Key Benefits Of Attending A Webinar
September 2, 2014
Webinars can provide ag retailers with a convenient option for gaining knowledge on the latest industry issues and solutions. Read More
Crop InputsBASF Is Betting On A Bright Agricultural Future
September 1, 2014
The crop protection products giant is gearing up for a busy time in agriculture by investing in both product production and development over the next couple of years. Read More
Eric SfiligojAn Erie Feeling For Ag
September 1, 2014
Plenty of water issues have been in the news lately, including the continuing drought in California. Read More
CropLife 100Pinnacle Acquires California-Based Retailer
August 29, 2014
Pinnacle Agriculture Holdings will acquire Kerman Ag Resources, Inc., which will operate under Pinnacle's Performance Agriculture brand. Read More
Allied Cooperative Grain Plant
ManagementArcadia Co-op To Merge With Allied Cooperative
August 28, 2014
Allied Cooperative has announced that members of Arcadia Co-op voted in favor of a merger with Allied Cooperative, paving the way for the consolidation which will be effective on December 1, 2014. Read More
InsecticidesBioinsecticide VENERATE Now Registered In California
August 27, 2014
Marrone Bio Innovations' VENERATE is a new tool to help California growers control crop-damaging insect pests, fight the development of insect resistance and reduce pesticide residues on fruits and vegetables. Read More
CropLife 100Two Iowa-Based Ag Co-ops To Merge
August 27, 2014
The Board of Directors and management of United Western Coop, Missouri Valley, IA has completed a merger with Heartland Co-op, West Des Moines, IA, effective September 1, 2014. Read More
FertilizerKoch Expands AGROTAIN Nitrogen Stabilizer Portfolio
August 26, 2014
Koch Agronomic Services, LLC has added two new innovative nitrogen stabilizers to the AGROTAIN product family – AGROTAIN ADVANCED and AGROTAIN DRI-­MAXX. Read More
Seed/BiotechDuPont To Build Two Seed Treatment Centers
August 26, 2014
DuPont has announced construction on two state-of-the-art centers dedicated to developing and testing seed treatment formulations, applications and seed handling techniques in an important step toward bringing new solutions to growers. Read More
Seed/BiotechLoveland Products Acquires A Controlling Interest In Ag…
August 26, 2014
Loveland Products, a subsidiary of Agrium , has announced the company has acquired a controlling interest in Agricen, a Dallas-area agricultural biotechnology company delivering biochemical-based products for efficient and sustainable plant nutrition. Read More
StewardshipUp Close Look At The 2014 Environmental Respect Award W…
August 25, 2014
The 2014 Environmental Respect Award winners were honored recently at the 24th annual event in Wilmington, DE. Read More
Eric SfiligojAg Science Rejection Carries Consequences
August 25, 2014
As innuendo and fear dog the regulatory process, agriculture can’t get the new tools it needs to combat world hunger. Read More
LegislationFarmers Dismayed As New Farm Bill Dumps Direct Payments
August 25, 2014
The threatened end of cash subsidies to the nation’s row crop farmers dates back through at least the last two iterations of national agriculture policy legislation. Read More
MAGIE 2014 ShowStopper
EquipmentJohn Deere Again Wins MAGIE ShowStopper Award
August 25, 2014
For the second consecutive year, John Deere was honored at the Midwest AG Industries Exposition (MAGIE) for its new R4045 sprayer. Read More