Ag bankers are charging higher interest rates and asking farmers to pledge more collateral in the face of a rising demand for loans, the Federal Reserve said Thursday in its quarterly Agricultural Finance Databook.
Few farmers—only 13 percent—surveyed for the Ag Economy Barometer said they expect farm profitability to improve in the year ahead. "There remains an undercurrent of concern about the farm economy among producers," said the Purdue economists who oversee the monthly gauge of farmer confidence on Tuesday.
Commodity prices are still in a trough but U.S. farm income is on the rise for the first time since 2013 because producers are sending more crops and livestock to market than initially expected, said the USDA. It forecast net cash farm income, a measure of liquidity, of $100.4 billion this year, far stronger than the February forecast of $93.5 billion, but only three-fourths of the record set in 2013.
Farmland values tend to fall when interest rates rise, but the rate increases since the Nov. 8 presidential election “are not large enough to suggest that decreases in farmland prices need to occur,” says economist Gary Schnitkey of U-Illinois. “However, farmland prices could face downward …
If the Federal Reserve raises interest rates, "it will mean higher costs for many producers" at a point when farm income is falling and growers are making increased use of credit, says Brent Gloy at Agricultural Economic Insights.
With sharply lower commodity prices at hand, "one of the key supports for sky high farmland values is changing rapidly," writes economist Brent Gloy at the Agricultural Economic Insights blog.
In a nationwide survey, farm lenders "are not as optimistic as they were in the fall of 2013," say Kansas State University economist.
Ag economist Jason Henderson of Purdue says "what has me a little nervous" is an upturn in borrowing as the farm sector heads into a period of lower commodity prices and farm income.