St. Louis Fed Ag Survey: Results Continue to Forecast Declines in Farm Income

ST. LOUIS ― A majority of lenders continued to report declines in farm income relative to a year earlier according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. Moreover, bankers expect farm income to decline again next quarter compared with the same period last year.

The survey was conducted Sept. 15 through Sept. 30. The results are based on responses from 20 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.

Both Farm Income and Expenditures Declining

Measuring banker’s assessments of farm income indicated that proportionately more lenders continue to report year-over-year declines in farm income. “The low price of grain and the falling price of cattle are going to make it hard on low-leveraged farmers and almost impossible for young, highly leveraged farmers,” said a Missouri lender. Farm household spending and capital spending also were reported to have declined in the third quarter relative to the same quarter a year ago.

Showing modest improvement from the second quarter, farm income registered an index value of 53. However, the current index value marks the 23rd 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.

Quality Farmland Values Fall While Ranchland Values Rise

Quality farmland values fell 1.7% in the third quarter from a year earlier, and are expected to decline further into the fourth quarter of 2019. On the other hand, ranchland or pastureland values rose sharply and were reported to be up 10.6% from a year earlier; some lenders expect ranchland or pastureland values to increase further over the next three months.

Two Special Questions in Survey Addressed Repayments

The first special question asked bankers about loan repayment expectations and 70% of the respondents expected that operating lines of credit will have the largest increase in repayment problems.

The second special question asked bankers about the type of workout arrangement available for borrowers having financial difficulties. Collateralizing unpaid portions of their operating lines of credit or making a long-term workout with their existing lenders garnered the largest responses from the bankers.