On average, agricultural lenders in the Midwest are reporting higher than expected first quarter income and spending, though bankers are still concerned about the lingering effects of the drought, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis.
"Actual farm income, household spending and outlays for capital expenditures all surpassed expectations of District bankers, as did loan repayment rates," the report said. Meanwhile, reported quality farmland, ranch and pastureland prices were down slightly relative to last quarter's price expectations.
"As in our previous three surveys, bankers, on net, expect land values and cash rents to continue rising," the report said. "However, it appears that banker expectations for future land value increases have moderated somewhat as fewer responses indicate that agricultural land values will continue to climb over the next quarter."
Lenders estimated that overall farmland prices for the first quarter 2013 decreased by an average 2.3% to $5,111 per acre, compared with fourth quarter 2012. Meanwhile, ranch or pastureland prices decreased by an average of 5.1% to $2,274 per acre. Similarly, cash rents of quality farmland declined an average of 8.6% to $171 per acre, while ranch or pastureland prices fell an average of 4.5% to $120 per acre.
In assessing the financial condition of crop producers, lenders revealed that 51% realized a modest-to-significant improvement in the financial condition of crop producers for the District as a whole, while 31% indicated no change and 18% indicated only modest deterioration. No one observed a significant deterioration.
Regarding the financial condition of livestock and poultry producers, 21% of lenders reported modest-to-significant improvement from a year ago. Meanwhile, 47% reported no change, while 32% reported modest-to-significant deterioration.
"Survey responses seem to confirm that most protein producers (livestock and poultry) are 'weathering the storm' of higher input costs, but have not fared as well as crop producers," according to the report.
Lenders also selected what they considered to be the most significant risk to the farming sector in 2013. The responses revealed that 50% considered the weak economy to be the most serious risk, with 35% citing higher input costs. Only 2% considered higher interest rates to be a significant risk, with another 2% citing a decline in land values.
Of the 10% who reported "other," they cited drought and commodity prices as the most significant. "It appears that a weak economy that potentially limits revenue growth in the farm sector, followed by or along with, a rise in input costs that squeezes profit margins, are the most significant farm sector risks District respondents foresee in 2013," the report concluded.
The survey for the report was conducted March 15-29, 2013. The results were based on the responses of 55 agricultural banks located within the boundaries of the Eighth Federal Reserve District.
Source: St. Louis Federal Reserve Bank