Chicago, Kansas City and St. Louis Federal Reserve Banks report they aren’t seeing much upward movement for many factors influencing farmers. For yet another year many areas are seeing softening land prices, eroding loan payments and fewer chances for farmers stay in the black.
Farmers in the Chicago district have more reason to be optimistic than some of their neighbors.
The district reported a 1% increase on farmland value in 2017 and three-quarters of the bankers surveyed expect these values to be stable in the first quarter of 2018. Land values grew in Indiana, Iowa and Wisconsin but fell in Illinois and likely Michigan (though the results had too few banker responses to assign a numerical value) compared to the fourth quarter of 2016.
Loan renewals and extension grew in December of 2017, but only 2.5% of farm loan customers are not expected to qualify for operating credit in 2018. There were more non-real-estate loans at the end of 2017 than the previous year. Interest rates for farm loans increased at the end of last year to levels similar to early 2012.
The Kansas City district suffered a little more overall than farmers in Chicago.
Kansas City area farmland values dropped 3% from 2016, with the sharpest drops in the first three quarters at a 5% to 7% pace. Farmland only dropped 2% in the fourth quarter of 2017. This decrease was in all land segments: irrigated, nonirrigated and ranchland. Notably, the western part of the district (cattle area) saw bigger improvement in land value while the eastern area remained steady. Overall sales for the district were reported as unchanged or slightly lower compared to 2016. However, they expect sales in 2018 to increase.
Ag credit conditions stabilized in 2017, but still show weakness. Demand for new loans and renewals or extensions increased at a slower rate in the final quarter of the year than the previous three quarters. Additionally the pace of decline in farm loan repayment rates was less widespread with fewer banks reporting lower repayment rates in the last quarter. However, despite improvement in the fourth quarter of 2017, bankers expect loan demand to grow and loan repayment rates to weaken slightly the first quarter of 2018.
Bankers are more optimistic this year than they were the past two years when it comes to farm incomes because fewer bankers expect it to decline. Less than half of bankers in Kansas and Nebraska expect further declines. In Oklahoma a majority expect an increase in farm incomes the first three months of 2018, likely because of increase cotton acreage and strong cotton prices.
Bankers in the St. Louis district say they’re modestly optimistic about future farm income.
Farmland and rangeland showed substantial increases in the fourth quarter last year—farmland rose 5% and rangeland jumped nearly 15%. Cash rent for both categories also increased in the final quarter of the year.
While farm income did decline in the fourth quarter of the year, the study revealed farmers have cut down on household spending and capital expenses compared to 2016. Approximately three-quarters of bankers expect no change in local economic conditions in 2018 and expect income the first quarter of the year to fall below those in 2017. Nearly all bankers said farmland returns in 2018 will be greater than breakeven, but less than 5%.
Demand for loans increased in the fourth quarter, with a greater percent of bankers agreeing with that assertion than in previous surveys. They expect more demand for loans the first quarter of 2018 as well. At the same time, more bankers reported erosion in loan repayment rates between the last two quarters of 2017. Interest rates on most fixed- and variable-rate loans changed little in the fourth quarter, except for interest rates on loans secured with farm real estate.