“Farmland prices have exploded like a rocket,” noted a Minnesota banker. Their experience was typical of rural areas in the Ninth District, according to the results of the latest survey of agricultural lenders by the Federal Reserve Bank of Minneapolis. Farmers and herders in the region also benefited from higher commodity prices, which led to improved financial conditions at the start of the year.

Farm income and capital spending increased in the first three months of 2022, according to lenders responding to the quarterly Farm Credit Conditions Survey, conducted in April. Revenue growth also led to higher loan repayment rates, while loan demand declined and renewals and extensions also fell slightly overall. Farmland values ​​jumped, rising sharply on average from a year earlier across the district, and cash rents jumped as well. The outlook for the growing season was optimistic, with respondents expecting further growth in farm income and spending.

Farm income, household expenditures and capital investment

A strong majority of district bankers surveyed (87%) said farm income increased in the first quarter of 2022 compared to the first quarter of 2021. This growth in income was mainly due to the strength in commodity prices: ground liquidity in the market right now,” one North Dakota lender wrote in a summary comment. More than two-thirds of respondents said farm capital expenditures are on the rise. Household spending similarly increased, as reported by 70% of lenders.

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Loan repayments and renewals

“The renewal season has been very easy due to rising grain and livestock prices,” a South Dakota banker commented. While 61% of lenders reported no change in the number of loan renewals or extensions, 28% said renewal activity had decreased. The repayment rate for agricultural loans has increased, according to 70% of respondents. Most of the others indicated that reimbursement rates were unchanged.

Applying for Loans, Required Collateral and Interest Rates

With improved farmer incomes, demand for loans has declined. Half of bankers in the survey reported a decline in loan demand in the first quarter compared to the same period last year, compared to 22% who noted an increase in loan demand. The majority of agricultural banks (96%) saw no change in the amount of collateral required. Interest rates on agricultural loans have increased, following the general trend. Average fixed and variable rates on machinery loans and home loans each declined in the first quarter by at least 10 basis points or more from year-end 2021. Interest rates also increased for operating loans, but to a lesser extent.

Cash rents and land values

Following the rapid growth of the previous survey, the value of farmland jumped in the first months of 2022, followed by cash rents. The value of non-irrigated cropland in the Ninth District increased by 23% on average compared to the first quarter of 2021. The value of irrigated land increased by 26% during the same period, while the value of ranches increased by 18%. The district’s average cash rent for rainfed land jumped 17% from a year ago. Rents for irrigated land and ranches increased by 16% and 17%, respectively.

Land value increases were generally consistent and similar across all states in the district except Montana, where rainfed land values ​​rose at a much faster rate, according to a relatively small sample of lenders. Changes in cash rents varied slightly more, but rents rose across the district.

Outlook

Expectations heading into the growing season were generally optimistic. Across the district, 70% of lenders predicted farm income will rise in the second quarter of 2022, compared to 7% predicting declines. The outlook for capital spending is also positive, with half of respondents expecting growth and 59% expecting an increase in farm household spending. Expectations are for steady borrowing over the next quarter: 39% think demand for loans will increase, compared to 35% who think it will fall. Loan repayment prospects were generally positive, with half of bankers expecting repayment rates to rise. Survey respondents generally expected renewals and extensions to decrease overall, and almost all anticipated no change in warranty requirements.

The main concerns shared by bankers were drought and inflation. Several respondents from North Dakota, which experienced a severe drought in 2021, noted that soil conditions there remained dry. Meanwhile, many comments from across the region noted that input cost increases were a concern going forward.

“Rising farm inputs, rising interest rates dramatically increase the cost of producing commodities,” wrote a Minnesota farm lender. “At current commodity price levels, cash flow is still working well. However, when markets return to historical averages, cash flow will become difficult. »


State Fact Sheet
Agricultural Credit Conditions Survey
First quarter 2022
Note: Michigan’s Upper Peninsula is not part of the survey.
MN MT n/a South Dakota WI Ninth district
Percentage of respondents reporting a drop in levels over the past three months compared to the same time last year:
Loan repayment rate 5 – – – – 2
Net farm income – – 8 – – 2
Farm household expenditure – – 8 – – 2
Farm capital expenditures – 33 17 7 – 8
Loan request 60 – 62 47 – 50
Percentage of respondents who reported increased levels in the last three months compared to the same period last year:
Loan renewals or extensions ten 33 8 7 33 11
References to other lenders – 33 – – – –
Guarantee amount required – 33 – 7 – 4
Loan request 15 67 8 20 100 22
State Fact Sheet – Perspectives
Agricultural Credit Conditions Survey
First quarter 2022
Note: Michigan’s Upper Peninsula is not part of the survey.
MN MT n/a South Dakota WI Ninth district
Percentage of respondents who expect levels to drop over the next three months:
Loan repayment rate – 67 – 7 – 6
Net farm income – – 23 7 – 7
Farm household expenditure – – 15 – – 4
Farm capital expenditures – – 25 13 – 9
Loan request 40 – 54 27 – 35
Percentage of respondents who expect levels to increase over the next three months:
Loan renewals or extensions 5 67 8 7 – 11
References to other lenders – 33 – 7 – 2
Guarantee amount required 5 33 – – – 4
Loan request 35 33 39 40 67 39
Federal Reserve Bank of Minneapolis Agricultural Interest Rates, Quarterly Survey of Agricultural Credit Conditions
Operating Machinery Real estate
Fixed Var. Fixed Var. Fixed Var.
Q2-20 July 5.1 4.9 5.0 4.8 4.8 4.6
Q3-20 October 5.0 4.8 4.8 4.8 4.6 4.5
T4-20 January 4.9 4.8 4.8 4.7 4.4 4.3
Q1-21 April 4.7 4.5 4.6 4.4 4.4 4.2
Q2-21 July 4.7 4.5 4.5 4.4 4.3 4.1
Q3-21 October 4.6 4.5 4.4 4.3 4.2 4.1
T4-21 January 4.7 4.4 4.5 4.3 4.3 4.1
Q1-22 April 4.7 4.6 4.7 4.5 4.5 4.3
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