Very Few Farmers Expected to Walk Away From Leased Land

May 14, 2015 12:00 PM
 
Very Few Farmers Expected to Walk Away From Leased Land

Agricultural credit and land values may be softening, but farmers appear unlikely to walk away from leased land, according to the Federal Reserve Bank of St. Louis’s quarterly Agricultural Finance Monitor.

Two-thirds (66.7 percent) of bankers told the St. Louis Fed that they expect fewer than 1 percent of farmers to walk away from committed leases this year. 

And more than three-quarters (76.9 percent) said it was “not a significant issue for our bank’s customers at this time.”

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The questions were new on the St. Louis Fed survey, which regularly asks agricultural bankers about loan demand, repayment rates, farm income, land values, cash rents, and other economic indicators.

“Since cash rent rates depend on expectations of farmland values and incomes, among other things, these questions attempt to assess whether the expectation of a further softening of farmland values and farm incomes are causing some renters to walk away from existing leases,” the St. Louis Fed explained.

The concern is understandable.

With grain prices currently below the cost of production, agricultural economists have predicted that farmers with big cash rent payments could find themselves in a difficult financial position. Some landlords have worried that their farmland tenants will simply walk away from their lease.

That does not appear to be happening in the Eighth Federal Reserve District, which covers Missouri, Illinois, Indiana, Kentucky, Tennessee, Mississippi and Arkansas.

“Overall, with the planting season completed or underway in most areas of the District, our results suggest that bankers do not believe this issue is a pressing problem for them or their customers,” the St. Louis Fed said.

Declining Farm Income, Spending

But farmers are responding to the current ag economy. Farm income, farm household spending, and big equipment purchases all slipped in the first quarter of 2015, with St. Louis Fed bankers believing the same will occur in the second quarter of 2015.

“Lower grain prices are finally changing the psychological mindset for producers,” an Illinois banker told the St. Louis Fed. “Most producers are not able to lower operating expenses significantly and are looking at troublesome cash-flow projections. Grain prices will likely remain in this price range for several years and will have a huge impact on lenders.”

Agricultural bankers in other Midwestern states are seeing similar trends, with declines in farm income and growing demand for loans.

“During years of historically high farm income, some farmers were able to self-finance. However, as working capital has declined due to high production costs and lower crop revenues, more producers have needed external financing to pay for operating expenses and capital purchases,” said the Federal Reserve Bank of Kansas City, which also released its quarterly Ag Credit Survey on Wednesday.

It could make for a tough year. “More than half of our customers’ cash flow projections show a loss in 2015,” a Nebraska banker told the Kansas City Fed. 

Part of the reason is the persistently high cost of production. “Crop producers comment that input costs and farmland values have not declined enough, considering prices received for grain,” a Missouri banker commented to the Kansas City Fed.  

Ranchland Values Rise

The bright spots appear to be livestock producers and ranchland values, which have benefited from rising prices for cattle and hogs.

“In contrast to the crop sector, where lower incomes were starting to place downward pressure on cropland values, bankers reported profits in the cattle sector were continuing to support high ranchland values,” said the Kansas City Fed. “ … Looking ahead, bankers expect continued strength in the cattle sector and increasing cattle inventories will sustain demand, and prices, for ranchland.”

The Kansas City Fed’s survey found that ranchland values were up 6.8 percent year-over-year in the first quarter, compared to a gain of less than one percent (0.9) for dryland farmland and a 2.1 percent loss for irrigated acres in the Tenth Federal Reserve District.

That district includes all or parts of Missouri, Nebraska, Kansas, Oklahoma, Wyoming, Colorado and New Mexico.

 

Click here to read the St. Louis Fed’s Agricultural Finance Monitor.

Click here to read banker comments from the Kansas City Fed survey.

Click here to read the Kansas City Fed’s Ag Credit Survey.

 

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Comments

 
Spell Check

steve
hendrum, MN
5/14/2015 09:41 PM
 

  Walk away from leased land? No, very few farmers will do that unless they have have another avenue to earn a living. Farmers will continue to farm the hand they have been dealt until the bank or ag supplier says "no more" They have no other choice

 
 

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