Jacob Devine - Public Affairs Intern
Toby Madden - Regional Economist
Published August 1, 2009 | August 2009 issue
After a weak first quarter, the outlook for agriculture is not much better after the second quarter. The Minneapolis Fed’s second-quarter (July) agricultural credit conditions survey showed that farm income, household spending and capital expenditures all decreased significantly in the second quarter. Loan demand increased slightly, as did collateral requirements. Few banks reported fund shortages, and interest rates stayed nearly constant from the first quarter. Farmland values and cash rents were stable to slightly lower. Although the second quarter may not have been as severe as the first, almost half of respondents expect lower net income and less capital spending in the third quarter.
In the second quarter, farm income decreased, with 41 percent of respondents reporting lower income. Some sectors have it tougher than others, however; one respondent noted, “Livestock sector (mainly hogs and dairy) performed badly in 2008, and this sector appears to be in worse shape in 2009.” A Wisconsin lender said, “The price of milk remain[s] well below the cost of production and is putting stress on most operations.” Wisconsin’s farm income decreased, according to 86 percent of respondents. Poor farm income put a damper on spending: 43 percent of respondents reported lower capital spending, and 29 percent reported lower household spending.
The rate of loan repayments also did not improve from the first quarter. Only 8 percent of respondents reported higher rates of loan repayments, while 21 percent reported lower rates. In addition, agricultural producers increased loan renewals and extensions. Twenty-two percent of banks reported increases, and 8 percent reported decreases.
Loan demand remained relatively constant, with 24 percent of respondents reporting an increase and an equal number reporting a decrease. Some lenders continued to tighten loan conditions, as 14 percent increased the amount of collateral required. Only 2 percent of banks reported refusing a loan because of fund shortages. Interest rates stayed almost uniformly constant; only variable loan rates for machinery changed, with an increase of 10 basis points.
Cash rents and land values were flat to lower in the second quarter. Average cash rents for nonirrigated farmland in the district were down about 1 percent, cash rents for irrigated farmland were down nearly 3 percent and cash rents for ranchland were up 1 percent. Nonirrigated farmland declined 2 percent in value, irrigated farmland prices were flat and ranchland dropped by an average of 2 percent. (Not only can prices vary from state to state, they can also vary from parcel to parcel.) For more detailed information on agricultural prices, see the Minnesota Land Economics website.