Farm income and agricultural land values are headed downward in the final three months of the year, bankers said in surveys by the Kansas City, Chicago and St. Louis Federal Reserve Banks, which cover most of the Midwest and the Plains. The Dallas Federal Reserve said lenders in its district in the southern Plains also expect land values to slip in the final quarter of the year.
“Expectations of further slumps in district farm income have caused agricultural lenders to continue to stress the importance of maintaining adequate levels of working capital, especially for highly leveraged producers,” said the Kansas City Fed in its quarterly Ag Credit Survey. “Many bankers expected the downturn to put more pressure on agricultural loan portfolios in the months ahead.”
For the first time in six years, farm bankers in the central Plains expect lower values for all three classes of land – irrigated cropland, non-irrigated cropland and ranchland – as the sector faces falling livestock and crop prices, said the Kansas City Fed. During the summer, ranchland values rose by more than 7 percent while cropland values were steady. “Farm income fell sharply in the third quarter,” said the report. “A majority of surveyed bankers expected farm incomes to continue to fall.”
A majority of bankers in the central Midwest “expected a decline in farmland values for the fourth quarter of 2015, hinting that the absence of a decline in the third quarter was merely a pause in a longer-term correction,” said the Chicago Fed. And strong majorities believe crop and livestock farmers “will struggle in terms of net cash farm earnings this fall and winter,” with incomes dropping overall.
The St. Louis Fed, covering the lower Midwest and mid-South, said its survey found that farm income “weakened measurably” during the summer. “Bankers expect further declines in the fourth quarter,” said the bank. “Bankers expect land values and cash rents for quality farmland and ranchland or pasture land to decline in the next three months compared with a year earlier.”
In Texas, southern New Mexico and northern Louisiana, “bankers expect farmland values to head lower next quarter,” said the Dallas Fed’s quarterly report. Ranchland values fell by 7 percent and irrigated cropland by 3 percent during the summer while dryland values rose by 1 percent.
USDA has forecast a 21 percent drop in net cash farm income this year compared to 2014, due chiefly to the continuing slump in commodity prices that began in 2012 and a downturn in livestock prices this year after hitting record highs in 2014. USDA is to update its U.S. farm income forecast on Nov 24.