Federal Reserve Bank of Minneapolis Ag Credit Survey- Land Values, Cash Rents Decline

Last week, the Federal Reserve Bank of Minneapolis indicated in an Agricultural Credit Condition Survey that, “Land values retreated further across district states, and interest rates on loans barely changed from the previous quarter. The outlook for the fourth quarter is similar, with lenders in the district overwhelmingly expecting farm incomes to decrease further.”

The Fed report stated that, “‘Things do not look good right now,’ a Wisconsin ag banker commented, grimly summarizing the state of the sector. A strong majority of district lenders surveyed (85 percent) reported that farm incomes decreased in the third quarter of 2016 from a year earlier, while none said that incomes increased.”

“Unlike other recent periods where low output prices primarily took their toll on crop producers, the pain is now being shared more broadly, with livestock prices falling recently as well. This trend was reflected in Montana, where 100 percent of respondents indicated that incomes fell,” the Fed report said.

Last week’s update added that, “The rate of repayment on agricultural loans fell, reflecting tighter budgets for farm households, while renewals slightly increased…[and]…Falling incomes also drove increases in demand for loans by farm households in the third quarter.”

With respect to land values and cash rents, the Fed report pointed out that, “The average value for nonirrigated cropland in the district fell by more than 3 percent from a year earlier, according to survey respondents. Irrigated land values fell 1 percent, while ranch- and pastureland values fell 5 percent, perhaps reflecting the more recent downturn in livestock prices. The district average cash rent for nonirrigated land dropped by more than the decrease in value, down almost 5 percent from a year ago. Rents for irrigated land decreased about 6 percent, while ranchland rents fell by 10 percent.”

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