Agricultural lenders expect farm income, which weakened in the spring, to continue to decline this summer, although a recent rally in corn, soybean, and wheat prices will act as a stabilizer, said Federal Reserve banks in Kansas City, Minneapolis, and St. Louis on Thursday. The administration’s promise of billions of dollars in trade payments this year was an additional bolster, said the Kansas City Fed.
Based on quarterly surveys of farm banks, the regional Feds said farmland values held steady this spring. Land makes up 80 percent of agricultural assets and is usually fundamental to a farmer’s financial health.
Futures prices for corn, soybeans, and wheat strengthened during June and July, giving hope of improved crop revenues following the wettest spring in a quarter-century. Futures prices were jolted, however, by Sino-U.S. trade ruptures this week. Corn and soybean plantings were smaller than expected this year, and fields will mature weeks later than normal. “Crops are behind, and we will need an extended fall for our crops,” a Wisconsin banker told the Minneapolis Fed. “Overall, with better prices, I think we are in a better position than the last three years.”
The Minneapolis Fed said the outlook was for “continued contraction” during the summer, following a decline in the spring. Bankers in the St. Louis Fed district said farm income fell in the April-June quarter, and a majority expected lower income for the July-September period. “Although farm income was still expected to decrease in the third quarter of 2019, the pace of decline was expected to be the slowest since 2014,” said the Kansas City Fed.
“Crop prices increased during the second quarter and the U.S. Department of Agriculture announced a continuation of the Market Facilitation Program in 2019. These developments have led to less pessimistic expectations about farm income in coming months,” said the Kansas City bank. “Stable farmland values and relatively low interest rates could support stronger credit conditions moving forward, especially if farm borrowers in the district are able to take advantage of higher crop prices in 2019.”
All three districts reported adverse impacts from the severe spring weather. In the Kansas City district, covering the central Plains and adjoining Rocky Mountain states, “almost 50 percent of farm borrowers were impacted by extreme weather or flooding,” and 20 percent were significantly affected. Three-quarters of ag bankers in the St. Louis district reported modest to significant weather impact. The St. Louis district runs on each side of this Mississippi River from the Arkansas-Louisiana border northward to the Missouri-Iowa border and eastward along the Ohio River almost to Ohio.
“Prompted by late-season snow, heavy rains, and flooding across the district,” the Minneapolis Fed asked bankers about the impact of severe weather. “While a third of lenders said there was no impact on their lending areas, 45 percent said the weather events had a modest impact and 23 percent reported significant impacts,” said the regional bank. Its district covers the upper Midwest and northern Plains.
Bankers in the Dallas Federal Reserve district said that 16 percent of farm borrowers were significantly affected and 28 percent were modestly affected by extreme weather this year. “They noted that heavy rainfall in the quarter had mixed effects, with some corn crops benefiting but other crops, particularly cotton, negatively affected. Prices continued to be seen as weak,” said the Dallas Fed. Its district is dominated by Texas, the No. 1 cotton state. The Dallas Fed did not ask bankers about farm income.
The Chicago Federal Reserve is expected to report on its quarterly survey of lenders next week. The USDA is scheduled to update its estimate of farm income at the end of this month. In March, it forecast net farm income, a measure of wealth, of $69.4 billion this year, a $6 billion increase from 2018 but the lowest total since $69.2 billion in 2009.