St. Louis Fed Ag Survey: Farm Incomes Continue to Decline

ST. LOUIS ― In the first quarter of 2019, farm income declined for the twenty-first consecutive quarter, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. However, some bankers expect farm income to improve in the second quarter.

The survey was conducted March 15 through March 31. The results are based on responses from 26 agricultural banks within the Eighth Federal Reserve District, which includes all or parts of seven Midwest and Mid-South states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

Farm Income Decrease, Expenditures Slightly Increase

Agricultural bankers reported declines in farm income over the first three months of 2019 relative to the same period a year earlier. The current index value marks the 21^st 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 diffusion index for farm income registered a value of 46 in the first quarter of 2019, modestly higher than the previous quarter’s index value of 41.

Going forward, some bankers expect farm income to register improved growth in the second quarter, as noted by a larger index value of 64. Relative to the previous report, more bankers reported increases in household spending and business capital spending in the first quarter; however, a majority still reported declines in the first quarter from a year ago.

Quality Farmland and Ranchland Values Fall

Quality farmland values fell 0.3 percent in the first quarter from a year earlier, after a 3.4 percent increase in the fourth quarter of 2018. Ranchland or pastureland values also decreased in the first quarter by 3.3 percent. The decline in ranchland or pastureland values in the first quarter was a sharp departure from the 6.5 percent gain registered in the fourth quarter of 2018. “Farmers are running out of capital,” a banker from Arkansas noted. “Commodity prices are too low for input costs and rents/land payments.”

Cash rents for quality farmland rose 1.5 percent in the first quarter, following a 2.9 percent gain in the fourth quarter of 2018. By contrast, cash rents for ranchland or pastureland fell 8 percent in the first quarter, after rising 1.3 percent in the previous quarter.

Two Special Questions Regarding Loans and 2019 Risks

In the first of two questions special to this quarter’s survey, bankers were asked what percentage of their customers borrowed up to their loan limit. Thirty-five percent of bankers reported that less than a quarter of their customers had borrowed up to their loan limit. A slightly smaller percentage of bankers (31 percent) reported that more than half of their customers had borrowed up to their loan limit.

The second special question asked bankers to assess the most significant risk to the farm sector in 2019. Sixty-two percent indicated an adverse trade outcome was the most significant risk to the farm sector this year.