There’s little good news for farmers and ranchers in the Kansas City Fed’s report on the agricultural economy for the third quarter of 2018.
The Fed says farm income and credit conditions continued to deteriorate in the quarter in the 10th District covered by the bank, which includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming and parts of western Missouri and Northern New Mexico. Heading into the fall harvest, the bank noted, “prices for most major commodities remained lower than a year ago amid elevated supply expectations and ongoing trade disruptions.”
More than half of bankers surveyed in the region reported lower farm income compared to a year ago, the Fed said, while less than 5 percent reported higher income. The decline in farm income was sharpest in states with higher concentrations in corn and soybeans. What’s more, expectations for farm income and loan repayment rates were lowest for those areas, along with areas more concentrated in hog and dairy production, as uncertainties surrounding trade continued.
The report pointed out that U.S. soybean exports to China were down 91 percent in the third quarter, “elevating concerns that fourth-quarter exports also could decline significantly.” More than 70 percent of respondents anticipated lower income in the next three months in Missouri and Nebraska, states where soybeans comprise 27 and 15 percent of farm revenues, respectively.
According to the Fed, borrower balance sheets are being pressured by the prolonged period of depressed farm income. Bankers report that most crop producers in 2018 have had a modest deterioration in working capital. And for the fifth straight year, most bankers reported having borrowers with some depletion of short-term operating funds.
“Stress on farm finances also contributed to an increase in the expected sale of mid- to long-term assets in 2018,” according to the report, prepared by Economist Cortney Cowley and Assistant Economist Ty Kreitman. Nearly 85 percent of bankers reported that farm borrowers plan to sell mid- to long-term assets before year’s end, up from about 75 percent a year ago.
The good news: Farmland values remained stable and continued to support agricultural credit conditions. In fact, the report said, cash rents for ranchland increased almost 5 percent from a year ago in the quarter. In addition, cash rents for irrigated farmland fell at the slowest pace since 2013, and the downward trend in non-irrigated farmland rents remained modest.
“However,” the Fed said, “lower farm income and reduced liquidity could weigh on farmland values in future quarters.”
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