Chicago Federal Reserve Sees Some Slow-down In Farm Economy Free Fall
In their August Agletter the Federal Reserve Bank of Chicago says surveyed ag bankers believe the ag sector may be close “bottom” and ready to bounce back.
Farmland values for the Seventh Federal Reserve District increased one percent from a year ago during the second quarter of 2017. This was the first year-over-year gain in three years. Additionally, “good” agricultural land values in the District moved up one percent from the first quarter to the second quarter of 2017, according to a survey of 186 agricultural bankers. District farmland values seemed to stabilize in the first half of 2017, despite lower prices for corn and soybeans relative to a year ago. Moreover, 76 percent of survey respondents expected agricultural land values to be stable during the third quarter of 2017, while 2 percent expected them to increase and 22 percent expected them to decrease.
In the second quarter of 2017, agricultural credit conditions for the District slowed their downward trend. Repayment rates for non-real-estate farm loans weakened relative to a year earlier in the second quarter of 2017 (but by the least since the fourth quarter of 2014). The proportion of the District’s agricultural loan portfolio reported as having repayment problems was nearly the same as a year ago. Renewals and extensions of non-real-estate farm loans continued their trend of increasing from a year ago, according to respondents. For the April through June period of 2017, demand for non-real-estate farm loans was up again from a year earlier—as was the availability of funds for lending by agricultural banks. For the second quarter of 2017, the District’s average loan-to-deposit ratio was 74.4 percent—5.5 percentage points below the average level desired by the responding bankers. On average, real interest rates for agricultural real estate, feeder cattle, and operating loans shifted up in the second quarter of 2017.
For the second quarter of 2017, there was a year-over-year increase of one percent in District agricultural land values—which was the first such upward movement since mid-2014. The year-over-year changes in farmland values varied across different areas within states, particularly in Iowa (see map and table below). District farmland values also moved up one percent in the second quarter of 2017 relative to the first quarter.
Relief for livestock producers seemed to have arrived in the form of rising prices for their goods. The USDA’s June index of prices received for livestock products was up 10 percent from a year ago, although it was still down 11 percent from two years ago. In June, prices received by farmers for important District products were above the levels from one year earlier: up 17 percent for milk, 17 percent for eggs, 5 percent for cattle (steers and heifers), and 3 percent for hogs (barrows and gilts). Given that Iowa and Wisconsin have larger shares of livestock production than the other District states, higher livestock revenues may have helped buoy agricultural land values in those two states.
Nominal interest rates on agricultural real estate and operating loans ticked up in the second quarter of 2017, but the nominal rates for feeder cattle loans dipped. As of July 1, 2017, District average interest rates on new farm operating loans and real estate loans had risen to 5.20 percent and 4.86 percent, respectively, while the average interest rate on feeder cattle loans edged down to 5.25 percent. Yet, after being adjusted for inflation (which eased) with the Personal Consumption Expenditures Price Index, all these interest rates reached their highest levels since the third quarter of 2016: Average real interest rates rose 52 basis points for farm operating loans, 51 basis points for farm real estate loans.
The complete report can be found at:
https://www.chicagofed.org/publications/agletter/2015-2019/august-2017