Author
“What a difference a quarter can make!” The Minnesota banker who made that comment was comparing current conditions with his outlook in early spring when he thought persistent drought was the biggest threat to the farm sector. “Excessive rainfall in that time has resulted in many unplanted crops,” he continued.
Despite the weather, farm incomes continued to increase in the second three months of 2013, along with other financial measures, according to the Minneapolis Fed’s second-quarter (July) agricultural credit conditions survey. Land values increased further across district states, and interest rates on loans generally fell slightly from the previous quarter. The outlook for the third quarter is more modest, with most respondents across all states in the district expecting farm incomes to stay the same or decrease.
Farm income, household spending and capital investment
More than a quarter of district lenders reported that farm incomes increased in the second quarter of 2013, and 64 percent said that incomes saw no change. North Dakota experienced the most widespread increase in income in the district, with 35 percent of respondents reporting higher farm income and only 9 percent noting decreases. Wisconsin had the highest number of lenders reporting decreased farm income, at 25 percent. Household and capital spending within the district also increased, with 97 percent of lenders reporting increases in or steady levels of household spending and 84 percent reporting unchanged or higher capital spending. The reported results were generally consistent throughout the Ninth District.
Loan repayments and renewals
Agricultural producers in the district are maintaining their rate of loan repayments, and renewals are similarly holding steady. Loan repayments were unchanged for 65 percent of respondents, while 34 percent reported higher repayment rates. A majority of lenders, 80 percent, stated that the number of renewals has held steady, and 12 percent reported a lower number of renewals.
Demand for loans, required collateral and interest rates
Demand for loans decreased slightly from the last survey as farm households remain flush with cash. About 47 percent of lenders experienced no change in loan demand, and 27 percent indicated that loan demand has decreased. The amount of required collateral remained flat, with 93 percent of respondents reporting no change. The interest rate picture was mixed—variable rates fell slightly on operating, machinery and real estate loans, while fixed rates increased slightly for machinery and real estate loans but held steady for operating loans.
Cash rents and land values
The average cash rents and land values for nonirrigated and irrigated cropland as well as ranchland in the district all showed increases from the past year, according to survey respondents. The largest increases were for nonirrigated farmland, which increased in value by 23 percent, while cash rents for it rose by 17 percent. Ranchland increased by 9 percent in value and saw a 5 percent increase in cash rents. While both values and rents increased on average throughout the district, ranchland rents fell slightly from a year earlier in Minnesota and Wisconsin, and in the latter state values for ranchland fell slightly as well. Winconsin had the greatest annual growth in nonirrigated land values, with an increase of 26 percent, while irrigated land values rose 41 percent in South Dakota.
Outlook
Expectations for the third quarter of 2013 are more moderate, as excess moisture prevented plantings in some areas and the outlook for crop prices is down. Most lenders predicted that farm incomes will remain steady at their currently high levels, but 26 percent forecast decreases. The majority of respondents expected no change in household and capital spending (73 percent and 61 percent, respectively), but more lenders expect investment to decrease than expect it to increase. Loan demand, loan renewals and the amount of required collateral were also largely expected to remain unchanged in the upcoming quarter.
Appendices:
Joe Mahon is a Minneapolis Fed regional outreach director. Joe’s primary responsibilities involve tracking several sectors of the Ninth District economy, including agriculture, manufacturing, energy, and mining.
