Farm income continues to fall for farmers in Minnesota, the Dakotas, Montana and northern Wisconsin. Ag lenders are concerned about trade and weather, but farmers have been bolstered by a crop price rally, according to the latest survey from the Federal Reserve Bank of Minneapolis.
“Crops are behind, and we will need warmer weather and an extended fall for our crops,” according to a Wisconsin banker. “Yields have been affected and will be lower in our area.”
However, that banker also noted, somewhat positively: “Overall, with better prices, I think we are in a better position than the last three years.”
These comments reflect numerous others from lenders in the area showing guarded optimism for the economic standing of their farmer clients. Here are the highlights of the second-quarter agricultural credit conditions survey from the Minneapolis Fed:
Farm income and spending
Slightly more than 60% of bankers reported farm incomes decreased in the second quarter of 2019 from a year earlier, while only 8% said that incomes increased. Capital spending was also down, with 64% of lenders saying it decreased compared with 5% claiming it increased.
Household spending within the district was flatter, with slightly more than half of lenders reporting no change, while more noted decreases than increases. Though decreases in capital spending were the norm throughout the region, a Minnesota lender noted that they were, “seeing a bit more optimism with higher grain prices. A bit more willing to buy equipment.”
Loan repayments and renewals
The rate of repayment on agricultural loans fell, and renewals slightly increased, as expected during leaner times for farm households. Compared with a year earlier, loan repayment rates decreased for 44% of respondents, while 54% reported that rates were unchanged.
Demand for loans, collateral and interest rates
Falling incomes also drove increases in demand for loans by farm households in the second quarter. About 40% of lenders reported loan demand increased from a year ago, only slightly lower than the proportion that noted unchanged loan demand (42%). Collateral requirements were unchanged, according to a solid majority of lenders surveyed—79%.
Fixed and variable interest rates for operating, machinery, and real estate loans all decreased modestly from the previous quarter.
Cash rents and land values
Consistent with surveys in recent quarters, the second-quarter results generally pointed to a moderate decrease in land values. Cash rents for agricultural land also fell slightly. The average value for non-irrigated cropland in the district decreased by 1.7% from a year earlier. Irrigated land and ranchland values were nearly flat, with the former decreasing and the latter increasing less than half a percent. The district average cash rent for non-irrigated land decreased by less than 1% from a year ago, while rents for irrigated land fell more than 3%.
Ag Economy Outlook
Expectations for the coming months were slightly pessimistic, on balance. Across the district, almost half of lenders predicted farm income will decrease in the third quarter of 2019. However, 18% expected increases.
Loan demand was generally forecast to rise in the upcoming quarter (35% expected increases), while the collateral requirements were mostly flat.
Some of this pessimism may be weather-related. Prompted by late-season snow, heavy rains, and flooding across the district, the second-quarter survey contained a special question on the impact of severe weather on overall conditions this year. While a third of lenders said there was no impact on their lending areas, 45% said the weather events had a modest impact, and 23% reported significant impacts.