Q1 Ag economy update: Farm income, land values, agricultural credit

On Thursday, the Federal Reserve Banks of Chicago, St. Louis and Kansas City each released updates regarding farm income, farmland values and agricultural credit conditions from the first quarter of this year.

By: Keith Good, University of Illinois

Federal Reserve Bank of Chicago First Quarter Report

David Oppedahl, Senior Business Economist at the Chicago Fed, explained yesterday in The AgLetter that, “District farmland values were unchanged in the first quarter of 2017 relative to both the first and fourth quarters of 2016.

Yesterday’s update from the Chicago Fed added that, “Survey respondents anticipated agricultural land values to remain stable in the second quarter of 2017: 69 percent of responding bankers expected farmland values to be steady, 29 percent expected a decline, and a few Iowa bankers expected an increase.”

Recall that last month, in the Fed’s Beige Book, the Chicago District pointed out that, “Expectations of low incomes for 2017 led to lower farmland values and cash rents for cropland compared with last year. However, land values for higher quality ground and recreational tracts were steady on balance.”

Federal Reserve Bank of St. Louis First Quarter Report

The Agricultural Finance Monitor, released yesterday by the St. Louis Fed, indicated that, “Similar to the past several reports, proportionately more bankers continue to report year-over-year declines in farm income. In the first quarter of 2017, the farm income diffusion index measured 55. [NOTE: An index value of 100 would indicate that an equal percentage of bankers reported increases and decreases in farm income relative to a year earlier.] However, the percentage reporting falling farm incomes has been declining modestly since the second quarter of 2016, as evidenced by a steady rise in the diffusion index. The index is projected to increase modestly further in the second quarter of 2017, from 55 to 62.

Federal Reserve Bank of Kansas City First Quarter Report

Nathan Kauffman and Matt Clark writing in Thursday’s Ag Credit Survey from the Kansas City Fed, noted that, “Farm income in the Tenth District continued to decline in the first quarter, but at a slightly slower pace than in recent quarters. According to the survey, 73 percent of bankers reported farm income was lower than the year before. The decline in the first quarter marked the fourth consecutive year that District bankers reported farm income was lower than a year earlier. Despite the persistent decline, the pace of softening appeared to slow in the first quarter. For example, 24 percent of bankers indicated farm income remained unchanged from the previous year, the largest share since the third quarter of 2015. Bankers expected farm income to decline further in the coming months, but also at a slower pace than in recent quarters.”

Meanwhile, a news release last week from CoBank indicated that, “‘Lower commodity prices are affecting some of our agribusiness borrowers, which is starting to impact credit quality in that portion of our loan portfolio,” said David P. Burlage, CoBank’s chief financial officer. ‘Further modest deterioration in credit quality is anticipated as long as commodity prices remain low. Overall, however, the risk-bearing capacity of the bank is strong and we remain well-positioned to meet the borrowing needs of our customers.'”

Note also that on Wednesday, the House Agriculture Committee is scheduled to hold a hearing titled, “State of the Rural Economy: Secretary of Agriculture Sonny Perdue.”  Committee Chairman Mike Conaway (R., Tex.) indicated that, “Secretary Perdue will share his perspective on the economic outlook in rural America along with his vision for USDA and the role it will play in ensuring that our country continues to enjoy the safest, most abundant, and most affordable food supply in the world.”

 

Originally posted by University of Illinois.

TAGS: Business
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