Saturday, November 17, 2012
benfranklin_100

Drought-Reduced Incomes Boosted Farm Lending, Report from Fed. Reserve Bank KC

AgFax.Com - Your Online Ag News Source


Survey of 10th District – Agricultural Credit Conditions – 3rd Quarter, 2012 – Federal Reserve Bank of Kansas City

The 2012 drought cut 10th District farm incomes in the third quarter, boosting demand for farm operating loans.  Farm incomes fell sharply during the quarter as escalating feed and fuel prices pushed production costs higher. Shrinking incomes spurred demand for farm operating loans as corn and soybean farmers and cow/calf operators searched for funds to pay for rising input costs. Bankers also approved more loan renewals and extensions compared with the previous quarter, as loan repayment rates dipped slightly. Capital spending plummeted in the third quarter and bankers expected further declines in the next quarter.

Livestock enterprises faced the biggest shifts in farm income and loan demand. As drought conditions intensifiedduring the summer, pastures dried up, feed costs soared with grain prices and income at livestock operations slumped. The sharpest income declines emerged in cattle feedlot and hog operations. Bankers expected high crop prices and crop insurance payments to support crop incomes. Nevertheless, bankers reported that corn and soybean incomes fell below last year’s highs due to elevated fuel costs and reduced yields. In contrast, incomes for District wheat producers rose, with a rebound in wheat production and high wheat prices.

The drought had little impact on District farmland markets. Bankers indicated that demand for quality farmland outpaced supply, even with more land being put up for sale. Bankers also reported that marginal cropland sold well in some areas. Both non-irrigated and irrigated cropland values remained well above year-ago levels, although the price gains began to slow. Meanwhile, interest rates for both real estate and non-real estate loans declined further in the third quarter, posting new record lows.

Bankers expressed some concerns about the effects of the drought extending into 2013. The spike in feed costs forced some herd liquidations in the District. Bankers indicated that further liquidations may be warranted if grain inventories remain low and inadequate moisture levels persist.

Net farm incomes tumbled in the third quarter as prospects for a bumper harvest wilted. After remaining above year-ago levels for two straight years, farm incomes fell below year-ago levels during the quarter. Rising feed and fuel prices raised production costs, cutting into incomes, although crop insurance payments and higher crop prices should offset some yield losses. Bankers expected further income declines in the fourth quarter as drought conditions were expected to linger throughout the District.

Dwindling farm incomes boosted demand for farm operating loans in the third quarter. District bankers reported the steepest quarterly increase in operating loan demand since the first quarter of 2010. Surging feed and fuel costs in the third quarter forced many corn and soybean farmers and cow/calf operators to seek short-term financing. Bankers had adequate funds for new loans and offered more loan renewals and extensions as loan repayment rates eased. Bankers expected loan demand to soften somewhat in the fourth quarter as crop prices and feed costs moderated in September and harvest neared completion.

In contrast, shrinking incomes curtailed farm spending on capital purchases. As with farm incomes, bankers reported lower capital spending compared with year-ago levels for the first time since early 2010 (Chart 3). Capital spending was expected to remain low in the fourth quarter, with some bankers commenting that farmers were awaiting election results and tax policy decisions before making significant purchases.

Livestock producers bore the biggest drought burden. Livestock incomes fell more sharply than crop incomes as surging feed prices and rapidly deteriorating pastures raised production costs. Farm incomes plummeted for cattle feedlot operators, but ranchers and hog producers also faced significant income declines. Bankers reported lower incomes from corn and soybean production, primarily in nonirrigated areas. Wheat incomes, however, were higher due to a solid harvest that preceded the drought and a subsequent run-up in wheat prices after the onset of the drought.

Rising input costs and lower income led to stronger loan demand for all sectors of the District’s agricultural economy. Livestock operators, though, exhibited the sharpest demand for operating loans. Approximately 40 percent of bankers indicated that the drought led to higher operating loan demand for cow/calf operations, and 30 percent of bankers reported higher operating loan demand for cattle feedlots. Bankers also noted increased operating loan demand for crop producers paying for rising harvest costs. Survey respondents expected lower repayment rates over the next quarter as a result of the drought.

Bankers expressed concern that the drought could persist into 2013. Exceptional drought conditions continued to cover a large portion of the District, and current forecasts showed the drought persisting into next year. Subsoil moisture levels were extremely low in the District as winter wheat planting began. Some bankers noted that inadequate rain or snowfall over the winter months could cause crop prices to remain high, force additional herd liquidations, and possibly constrain next year’s crop growth.

The drought did not appear to have significant impact on farmland markets in the third quarter. Farmland values rose further during harvest, though gains were more modest compared with the surge seen during the past two years. District cropland values moved nearly 3 percent higher in the third quarter and ranch land values edged up around 2 percent. Drought conditions had little effect on the demand for farmland, and bankers expected sales to remain solid even with a seasonal upswing in the number of farms for sale after harvest. Lenders continued to lower average interest rates on both farm real estate and farm operating loans to attract borrowers in an extremely competitive lending environment.

With additional gains during the third quarter, average farmland values once again set new records in many areas of the District. Non- irrigated cropland prices rose nearly 25 percent above year-ago levels in the third quarter, and irrigated land values remained more than 20 percent higher than 2011 levels. In addition, ranch land values appreciated an average of 14 percent during the past year. With farmland value gains slowing, however, about three-quarters of survey respondents felt that farmland values would stabilize at high levels heading into 2013.

Nebraska and Kansas posted the strongest farmland value gains in the third quarter. Non-irrigated farmland values in Nebraska surged the most, rising 30 percent above year-ago levels. Kansas experienced the strongest irrigated farmland value gains with prices rising 25 percent annually. Ranchland values were around 15 percent higher in all District states except Missouri. Land value gains continued to accelerate faster than cash rents as annual rental rates increased an average of 12 percent for both cropland and ranch land in the third quarter.

Banker Comments from the Tenth District:

“Gross income looks good for agriculture but the margins are continually being squeezed by the increasing costs of the inputs.” –Eastern Oklahoma

“Farm operations have plenty of liquidity – the drought will have little effect on loan repayment this year.”

Northwest Missouri

“A few farmers had exceptional crops if they received rains, but they are very spotty.” –Southeast Colorado

“Crop insurance has been vital to the long-term stability of our farmers and their ability to withstand two years of drought in our area.” –Western Kansas

“Income will be stable due to crop insurance payments; however, farmers will spend less on capital items such as equipment replacements or upgrades.” –Western Missouri

“Producers will borrow a lot more because they will be out of old crop and unable to market throughout the spring and summer.” –Northeast Nebraska

 

Download Complete .pdf Survey with Charts

 

 

 

Tags: , , , , , , ,


One Response to Drought-Reduced Incomes Boosted Farm Lending, Report from Fed. Reserve Bank KC

  1. Lynette Beiser says:

    The banks in southwestern Ohio are not loaning money to farmers for cattle lines. They say it is too risky. Farmers here have no choice but to sell out their loads. The banks are requesting 3 years worth of paperwork, then take 4 months to review and refuse. We are given tighter loan guidelines making it impossible to get loans.

Leave a Reply

Name and Email Address are required fields. Your email will not be published or shared with third parties.

Sunbelt Ag News

    Happy Thanksgiving from AgFax Media!11-27

    AFB Grain-Soybean Close: Corn, Wheat Higher, Soybeans See Modest Losses11-26

    AFB Cotton Close: Prices Surge Higher11-26

    AFB Rice Close: Jan, March Chart Bullish Key Reversals11-26

    Energy: N. American Oil Companies See Improved Financial Results in 3rd Quarter11-26

    Residential Heating Oil Prices Lower11-26

    Propane Stocks Fall 2M Barrels11-26

    Gasoline Prices Drop 7 Cents11-26

    Diesel Prices Fall 3 Cents11-26

    Texas: Hopkins County Designated Natural Disaster Area11-26

    Kansas: 4 Counties Declared Natural Disaster Areas11-26

    Alabama: 4 Counties Designated as Primary Disaster Areas11-26

    Texas Pecans: Demand Good but Quality Variable11-26

    Louisiana Pecans: Light Deliveries, Good Buying Interest11-26

    Georgia Pecans: Prices Slightly Higher with Strong Trade11-26

    DTN Livestock Midday: Pressure Develops in Cattle Trade11-26

    DTN Grain Midday: Soybeans Slip 5 to 10 Lower11-26

    Farmers Share What They’re Thankful For — DTN11-26

    GMO Crops Have Facts on Their Side, but Debate Goes on — DTN11-26

    DTN Cotton Open: Posts Slight Gains in Quiet Trade11-26

    Wheat: Make One Last Scouting Trip This Fall — DTN11-26

    Farm Income Down 21%; Expenses Up 5.7% – USDA Forecast11-26

    DTN Livestock Open: Futures to Start on Mixed Basis11-26

    DTN Grain Open: Wheat Leads Markets Higher11-26

    Keith Good: Net Farm Income to Drop 21.1% from 2013, ERS Forecasts11-26

    DTN Livestock Close: Feeder Futures Knocked Hard for 2nd Session11-25

    Livestock: 6 Tips to Fight PEDv This Fall11-25

    Doane Cotton Close: Outside Strength Helps Prices Rebound11-25

    AgFax Cotton Review: New Stink Bug App; India Exports Drop11-25

    DTN Cotton Close: Higher on Light Volume11-25

    Tax Breaks: Waiting for 2014 Equipment Deduction, Biofuel – DTN11-25

    DTN Grain Close: Bean Complex Rallies, Grains Follow11-25

    USDA: Weekly National Peanut Prices11-25

    Georgia: 10 Farm Bill Meetings Scheduled for Mid Dec.11-25

    AgFax Rice Review: Iraq Resumes U.S. Purchases; Cambodia Wins Best Rice Award11-25

    Winter Weather Creates More Problems for Railroads — DTN11-25

    Future of Cellulosic Biofuels in U.S. Questioned — DTN11-25

    AgFax Peanut Review: Growers Urged to Plant Earlier; Texoma Sells Drying Facility11-25

    Shurley on Cotton: New Round of Weakness Sets In11-25

    Welch on Wheat: Crop Condition Down Slightly11-24

    Welch on Grain: Snow Keeps 770M Bushels of Corn in Field11-24

    Farmland Partners Buys 7 South Carolina Farms for $28M11-24

    Livestock: Hog and Pork Prices Return to Reality11-24

    Corn: Breaking Down Stalks Takes Thought, Planning — DTN11-24

    DTN Fertilizer Outlook: Winter’s Arrival May Delay Some Buying11-24

    Brazil Soybeans: Dry Conditions Still Cause for Concern11-24

    Flint on Crops: Low Input Farming May be Necessary in 201511-24

    Midwest Corn And Soybean Yields – Our Readers’ Reports – AgFax11-22

    Rice Comment: The Case for Neonicotinoid Seed Treatment11-22

    U.S. Rice: Rain Stalls Texas 2nd Crop Harvest; Crop Sales Continue11-22

    Rice Market: Sale to Iraq Moves the Market11-22

    Rose on Cotton: Looking for the Positives This Week11-21

    Grain Drying: 6 Questions About Effects Of Sudden Drop In Temps11-21

    Is Your Lifestyle Costing You the Farm?11-21

    Farmers Storing Grain Need to Weigh Risk Management Factors – DTN11-21

    Peanut Harvest Updates From Southeast, Delta And Southwest – AgFax11-21

    Cleveland on Cotton: 57 Cents – ‘The Bottom is In’11-21

    Ag Labor: Immigration Order Provides Little Long-Term Benefit – DTN11-21

    USDA: Peanut Price Highlights11-21

    Ag Policy: Farm Bills Need Long-Term View11-21

    Cotton Market Weekly Review by Region11-21

    Arkansas Cattle: Ranchers Should be Alert to Acorn Poisoning11-21

    Economist: Livestock Industry Will Have Strong Rebound11-21

    DTN Dried Distillers Grain: Cheaper Feed Source for Beef Producers?11-21

    Mississippi Outdoors: Common Deer Parasites Do Not Affect Venison11-21

    Sunbelt Ag Events

     

    About Us

    AgFax.Com covers agricultural trends and production topics, with an emphasis on news about cotton, rice, peanuts, corn, soybeans, wheat and tree crops, including almonds, pecans, walnuts and pistachios.

      

    This site also serves as the on-line presence of electronic crop and pest reports published by AgFax Media LLC (formerly Looking South Communications).

        

    Click here to subscribe to our free reports.

      

    We provide early warnings and confirmations about pests, diseases and other factors that influence yield. Our goal is to quickly provide farmers and crop advisors with information needed to make better and more profitable decisions.

         

    Our free weekly crop and pest advisories include:

    • AgFax Midsouth Cotton, covering cotton production and news in Alabama, Arkansas, Louisiana, Mississippi, Tennessee and Missouri.

    • AgFax Southeast Cotton, covering cotton production and news in Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia.

    • AgFax Southwest Cotton (new for 2013!), covering cotton production and news in Texas, Oklahoma, Kansas and New Mexico.

    • AgFax West (formerly MiteFax: SJV Cotton), covering California cotton, alfalfa, tomatoes and other non-permanent crops in California's Central Valley.

    • AgFax Rice covering rice production and news in Arkansas, Louisiana, Mississippi, Missouri and Texas.

    • AgFax Peanuts, covering peanut production in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Texas and Virginia.

    • AgFax Southern Grain: covering soybeans, corn, milo and small grains in Southern states.

    • AgFax Almonds, covering almonds, pistachios, walnuts and other tree crops in California's Central Valley.

    • AgCom 101, providing guidance to ag professionals involved in social media.

    Our newsletters are sponsored by the following companies: FMC Corporation Chemtura Dow AgroSciences.

          

    Mission statement:

    Make it as easy as possible for our community of readers to find and/or receive needed information.

              

    Contact Information:

    AgFax Media. LLC

    142 Westlake Drive Brandon, MS 39047

    601-992-9488 Office 601-992-3503 Fax

    Owen Taylor Debra L. Ferguson Laurie Courtney

          

    Circulation Questions?

    Contact Laurie Courtney