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Farm finances held up into summer, despite drought concerns

Second-Quarter 2021 Agricultural Conditions Survey

August 12, 2021


Joe Mahon Director, Regional Outreach
Brown cow in a dried pasture
Getty Images

Article Highlights

  • Farm incomes increased broadly in the second quarter; outlook is positive but more moderate
  • Operating expenses for most agricultural operations were up moderately
  • Lenders still concerned about drought impacts, especially for livestock producers
Farm finances held up into summer, despite drought concerns

Solid commodity prices and persistent government aid benefited agricultural producers even as severe drought had a negative impact in many areas, according to a recent Federal Reserve Bank of Minneapolis survey. “Overall condition of ag economy [is] good,” said a Minnesota banker. “Concerned for livestock producers with heat and dryness. Input costs/feed costs going up. Crop farmers in good shape.”

That was one of multiple comments on the Minneapolis Fed’s second-quarter agricultural credit conditions survey highlighting that drought has had a more negative impact on livestock and dairy producers than on crop farmers. The survey, conducted during July, indicated that farm incomes increased from April through June relative to a year earlier. Spending on capital equipment and farm household purchases also increased. Growing incomes led to reduced loan demand and supported a high rate of loan repayment, while renewals and extensions decreased. Farmland values rose strongly, while cash rents also jumped.

The outlook for the third quarter was more modest. However, a lot depended on weather conditions through the end of the growing season.

Farm income, household spending, and capital investment

Farm incomes and spending increased on the strength of crop and livestock prices. Two in five district lenders surveyed reported that farm incomes increased in the second quarter of 2021 compared with the same period in 2020. More than half of respondents said capital spending by farming operations was up. Farm household spending was also up on balance, though 45 percent of lenders reported that it was stable; only 6 percent reported that it fell.

In North Dakota and Montana, where drought conditions started earlier and have been worse, a higher share of respondents reported falling farm incomes. “Farmers are spending less in preparation for a weak small grain crop. Ranchers are spending less because there isn’t any hay to feed cattle this summer and next winter,” wrote a North Dakota lender.

Numerous comments cited rises in input prices and other operating costs as a restraint on incomes. A special question on the second-quarter survey asked about recent changes in production expenses. While the vast majority of respondents claimed expenses had increased in the first half of 2021 relative to a year earlier, two-thirds described that increase as “modest,” compared with a quarter who called it “significant.”

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Demand for loans, required collateral, and interest rates

“The amount of funds received from stimulus and COVID relief by our customers over the past year as well as high livestock and grain prices have significantly affected our loan volume due to additional pay-downs,” commented a South Dakota lender. Demand for credit fell further in the second quarter as a result of growing incomes. Half of respondents indicated that loan demand decreased relative to a year earlier, compared with about a fifth who reported greater demand. Collateral requirements were unchanged, according to a great majority of lenders surveyed—94 percent. Continued declines in interest rates came as a further boon for farmers and ranchers. Average fixed and variable rates on operating, machinery, and real estate loans were all unchanged or fell further in the second quarter after decreasing every period for the previous two years.

Loan repayments and renewals

The rate of repayment on agricultural loans increased, reflecting continued improvement in farm finances, while renewals decreased somewhat. Just over half of respondents reported that loan repayments were up from a year earlier, while only 5 percent said that repayment rates decreased. More than two-thirds of lenders stated that the number of renewals was unchanged, with an additional 21 percent reporting that renewals were down. No banks reported having refused a loan due to a shortage of funds.

Cash rents and land values

After halting their half-decade slide and rebounding since late last year, land values and cash rents surged in the second quarter. Ninth District nonirrigated cropland values increased by 16 percent on average from the second quarter of 2020. Ranch- and pastureland values also jumped, by nearly 13 percent, while nonirrigated cropland values increased about 10 percent. The district average cash rent for nonirrigated land jumped by more than 9 percent from a year ago. Rents for irrigated land and ranchland each increased about 6 percent. Changes in land values and rents were generally consistent across district states.


As always, the outlook for farmers depended on the weather. “Crops still look good, but are now approaching the point of quickly deteriorating,” wrote a South Dakota lender, one of several respondents who expressed a similar sentiment. In some areas, small grain crops were already considered a loss and being cut for animal feed, per comments.

Expectations for the remainder of the growing season were moderately optimistic. Across the district, half of lenders expected farm income to decrease in the third quarter of 2021, compared with 16 percent forecasting increases. The outlooks for household and capital spending were similar, with roughly equal shares of respondents expecting them to increase or remain unchanged in the next three months, and only minorities expecting decreases. Loan demand was generally forecast to hold steady in the upcoming quarter, with 46 percent of lenders expecting no change and the remainder roughly split between those expecting increases and decreases. The outlook for loan repayment was greater on balance, but more than half of respondents expected no change in repayment rates. Though a few respondents (6 percent) expected to increase collateral requirements for borrowers, nearly all of them were not planning any change.

State Fact Sheet
Agricultural Credit Conditions Survey
Second-Quarter 2021
Note: The Upper Peninsula of Michigan is not part of the survey.
  MN MT ND SD WI Ninth District
Percent of respondents who reported decreased levels for the past three months compared with the same period last year:
Rate of loan repayments 8 6 5
Net farm income 33 18 6
Farm household spending 18 6 6
Farm capital spending 9 33 24 11
Loan demand 46 67 59 59 52
Percent of respondents who reported increased levels for the past three months compared with the same period last year:
Loan renewals or extensions 8 33 18 50 11
Referrals to other lenders 4 33 6 2
Amount of collateral required 33 6 5
Loan demand 17 33 24 12 50 19
State Fact Sheet - Outlook
Agricultural Credit Conditions Survey
Second-Quarter 2021
Note: The Upper Peninsula of Michigan is not part of the survey.
  MN MT ND SD WI Ninth District
Percent of respondents who expect decreased levels for the next three months:
Rate of loan repayments 4 33 12 12 10
Net farm income 4 33 47 16
Farm household spending 41 11
Farm capital spending 4 33 41 50 16
Loan demand 38 33 26 24 29
Percent of respondents who expect increased levels for the next three months:
Loan renewals or extensions 4 67 18 6 - 11
Referrals to other lenders 33 13 5
Amount of collateral required 67 6 6 6
Loan demand 17 67 41 12 50 25
Agricultural Interest Rates from the Federal Reserve Bank of Minneapolis, Quarterly Survey of Agricultural Credit Conditions  
  Operating Machinery Real Estate
  Fixed Var. Fixed Var. Fixed Var.
Q3-19 October 6.1 5.9 5.9 5.8 5.7 5.5
Q4-19 January 5.8 5.7 5.7 5.6 5.5 5.3
Q1-20 April 5.3 5.1 5.2 5.1 4.9 4.8
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
Q4-20 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
Joe Mahon
Director, Regional Outreach

Joe Mahon is a Minneapolis Fed regional outreach director. Joe’s primary responsibilities involve tracking several sectors of the Ninth District economy, including agriculture, manufacturing, energy, and mining.