Yesterday the Federal Reserve Banks of Chicago, Kansas City and Minneapolis released updates on farm income, farmland values and farm credit conditions starting in the third quarter of 2022. Federal Reserve Bank of Dallas also released its agricultural survey for the third quarter last month.
Federal Reserve Bank of Chicago
David Oppedahl, policy adviser at the Chicago Fed, explained in the AgLetter this, “With farm incomes still strongthe District had a 20% year-over-year gain in the value of its farmland in the third quarter of 2022. It was the fourth consecutive year-over-year increase of at least 20% for district farmland values. Indiana led the way with a year-over-year increase in farmland values of 29 percent; the other states in the district also saw double-digit year-over-year farmland value growth.
The AgLetter said: “After being inflation adjusted with the Personal Consumption Expenditure Price Index (PCEPI), the values of agricultural land in the district were still up 13% in the third quarter of 2022 compared to a year ago; it was the fifth consecutive quarter with at least as large a year-on-year increase in the real value of farmland.
Mr. Oppedahl added that “Overall, the district agricultural credit conditions were better in the third quarter of 2022 than a year earlier, despite sharply rising average interest rates on agricultural loans.”
And the Chicago Fed indicated that “In real terms (after adjusting for inflation with the PCEPI), the average interest rate on farm loans was slightly above zero in the third quarter of 2022, after being in negative territory for the previous four quarters; the average real interest rate on feeder cattle loans followed a similar trajectory over this period. Yet the the average real interest rate on agricultural real estate loans remained negative for the fifth consecutive quarter.
Yesterday’s report also stated that “Regarding the current state of Midwestern agriculture, an Indiana banker noted:”Inputs are way above standard, and if commodity prices start to drop, it won’t be pretty. We still have good net worth on most farms, but that can dissipate quickly.'”
Federal Reserve Bank of Kansas City
Nate Kauffman and Ty Kreitman, writing in yesterday’s edition Farm Credit Survey of the Kansas City Fed, noted that “Interest rates on agricultural loans have risen sharply in the third trimester and the acceleration in the value of agricultural real estate continued to subside.
Farm income and credit conditions remained strong, but the pace of improvement slowed.
“The financial impact of Drought also intensified, especially in the southern and western parts of the district. Despite recent headwinds, farm finances have remained strong and continued to support the good performance of agricultural loans.
Yesterday’s update stated that “the average rate charged on agricultural loans grew rapidly alongside higher benchmark rates. Variable and fixed rates on all types of loans have been about 75 and 65 basis points higher than last quarterrespectively.”
The Farm Credit Survey indicates that, “Higher interest rates have had a direct impact on agricultural borrowers according to lenders. About two-thirds of district respondents indicated that higher interest rates had a negative effect on the financial conditions of borrowers.”
Regarding land values, the Kansas City Fed pointed out that “As interest rates rose, growth in farm real estate values showed more signs of slowing. The value of rainfed agricultural land increased by approximately 23% and 3% over the prior year and quarter, respectively.
The Investigation added that, “Similar to farm income, key measures of credit conditions remained strong, but improvements were more limited in the third trimester. Agricultural loan repayment rates continued to increasebut the slowed rate of improvement.”
Federal Reserve Bank of Minneapolis
In an article yesterday,Farm incomes were maintained during the harvest season“, underlined Joe Mahon, “Land values and cash rents jumped again in the third quarter after rising sharply in the previous survey. Ninth district not irrigated cropland values increased by 20 percent on average from the third quarter of 2021. Values for irrigated ground increased by 15 percent, while the value of ranches and pastures increased by almost 20%. Land rents have followed suit, as district average cash rent for rainfed land increased by 11% from a year ago. Irrigated land rents rose 13% while ranch rents jumped 4%.
Federal Reserve Bank of Dallas
At the beginning of last month, in his Agricultural surveythe Dallas Fed noted that “bankers responding to the third quarter survey reported weaker overall conditions in most areas of the Eleventh District. Extremely dry conditions put a strain on agricultural production, in particular for cotton and pasture.”
The Investigation added that “Ranch and Arid Land values have increased this quarter, while irrigated cropland values were stable.
“According to bankers who responded in both this quarter and the third quarter of 2021, the value of cropland, dryland and ranches increased by at least 10% year-over-year in Texas, with some segments seeing much larger increases.”