Farmers and ranchers are tightening their purse strings and spending less in town, say farm bankers across the Farm Belt. With farm income down due to sharply lower commodity prices, cutbacks are expected to continue into the fall at a minimum.
Forty percent of the farm bankers in the central Plains who took part in a quarterly survey “saw signs of weakness in the farm economy that also was dampening Main Street business activity,” said the Kansas City Federal Reserve Bank. “Overall, bankers noted lower levels of household and capital spending in the second quarter compared with last year and expected further declines in coming months,” said bank’s Agricultural Credit Conditions report.
Farm income is forecast to drop by more than 20 percent this year, led by lower crop prices, USDA estimated in February. It would be the lowest income level since 2010 but still well above income levels in preceding years. Farm income soared along with crop prices in the boom that began in 2006. The era of high crop prices and low interest rates pushed up farmland values as well. USDA is to update its farm income forecast on Aug 26.
Agricultural bankers in the central Plains said the farm sector was strong for the moment but they “also noted some emerging risks due to lower farm income,” said the Kansas City Fed. If commodity prices remain low in coming months, “crop insurance might not provide a comparable level of revenue protection in 2015,” it said. “Looking forward, loan quality may become more of a concern beyond 2014 if repayment rates come under additional pressure from declining profit margin.”
Bankers in the Mid-South and lower Midwest said average farm income was down during the second quarter, running from April 1-June 30, and so was farm household spending and capital equipment expenditures, said the St Louis Federal Reserve Bank in its quarterly ag survey. “Farm income levels in the third quarter are also expected to be lower than a year earlier, as are household and capital equipment expenditures,” said the bank.
The Chicago Federal Reserve Bank said lenders in its Corn Belt district expected higher volumes in the third quarter for non-real estate loans, “especially those for operating loans (and even for feeder cattle loans)…Volumes for farm machinery and grain storage construction loans were forecasted to fall in the July through September period relative to their year-ago levels.” Fewer farmers are looking for loans to buy land, said the Chicago Fed.