St. Louis Fed Ag Survey: Twentieth Consecutive Quarter Farm Income Declines

ST. LOUIS ― Farm income continued to decline in the Midwest and Mid-South during the fourth quarter of 2018, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. Despite further downward pressure on farm incomes, prices of quality farmland and ranchland or pastureland values all rose.

The survey was conducted from December 15, 2018, through December 31, 2018. The results presented here are based on the responses from 22 agricultural banks within the boundaries of the Eighth Federal Reserve District. The Eighth District includes all or parts of seven Midwest and Mid-South states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

Farm Income, Expenditures Decrease

Lenders continue to report declines in farm income relative to a year earlier. The current index value marks the 20th consecutive quarter with a value below 100. Based on a diffusion index methodology with a base of 100 (results above 100 indicate proportionately more bankers report higher income compared with the same quarter a year ago; results lower than 100 indicate proportionately more bankers report lower income from a year earlier), the fourth-quarter index value for farm income was 41. Expectations for farm income in the first quarter of 2019 were only slightly better with an index value of 48. “We have heard rumors of large farmers filing for bankruptcy. Farmers in our area still have crops in the field,” according to a Missouri lender.

However according to the report the index values suggest fewer bankers reported declines in household spending, with an index value of 68 compared with farm-related capital expenditures index value of 29. Bankers are slightly less pessimistic about the prospects for household spending and capital expenditures in the first quarter of 2019.

Quality Farmland, Ranchland, and Cash Rents Rise

Despite expectations of falling land values over the past few surveys, quality farmland values rose 3.4 percent in the fourth quarter from a year earlier. Ranchland or pastureland values increased by 6.5 percent in the fourth quarter after increasing 1.5 percent in the third quarter. Cash rents for quality farmland rose 2.9 percent in the fourth quarter, following a 2 percent gain in the third quarter. Cash rents for ranchland or pastureland rose by less, 1.3 percent, after increasing by 0.8 percent in the third quarter.

Special Questions Regarding Economic Conditions, Economic Outlook and Expectations for 2019

This survey also included questions regarding the health of the rural economy in their region, the economic outlook for 2019 and expectations for farmland returns in 2019. About two-thirds of bankers reported that local economic conditions were fair, while about a third reported that conditions were good. Regarding the economic outlook, two-thirds believe that local economic conditions will remain the same, while a third expect them to worsen in 2019. Looking at expectations for farmland returns, nine in ten bankers expect farmland returns to be positive, greater than 0 percent but less than 5 percent.