As Farm Sector Conditions Decline, Bankers Look for Modest Declines in Cropland Values

Agricultural conditions worsened across the U.S. due to weak farm income, persistent drought, and declining exports, according to the latest Fed Beige Book report.

Prices for corn and soybeans fell in the Midwest and western and southern Plains. Cropland values in the western Plains have leveled off after recent gains while pasture values continue to rise due to strong demand. Input prices for the upcoming spring planting season appear stable in the Mid-Atlantic and Midwest regions. The strengthening dollar and labor disputes at ports along the West Coast have hurt agricultural exports. Drought conditions have improved but still persist in some areas of the Southeast and Southern Plains, while drought conditions in California hurt yields and have not improved.

Agricultural bankers reported that non-irrigated cropland values edged down in the fourth quarter of 2014 from recent peaks in several states while year-over-year value gains have moderated in others (Map). Ranch land values, however, continued to rise with strong demand for high-quality pasture. Source: Federal Reserve District Agricultural Credit Surveys (Chicago, Minneapolis, Kansas City, and Dallas)

Prepared at the Federal Reserve Bank of St. Louis and based on information collected through February 23, 2015. The Beige Book summarizes comments received from business and other outside contacts.

The following is a Fed region-by-region summary of farm sector economic conditions, starting in the Mid-Atlantic and moving west:

Richmond – Agribusiness contacts cite typical seasonal slowdowns, but business conditions are slightly stronger than at this time last year. Additionally, a farmer in Virginia noted that the spring outlook was “really good.” Planting and harvesting of sod, shrubs, and trees is occurring in South Carolina and Virginia, but adverse weather has reduced the number of days available to do so. Input prices are mostly stable, while sod prices are up slightly. A South Carolina farmer noted concern over low commodity prices and difficulty navigating recent insurance legislation.

Atlanta – Drought conditions improved in parts of the region although some areas are still suffering from dry conditions. Florida orange growers continue to combat citrus greening while the USDA announced additional funding to help fight the disease. The most recent 2015 domestic production forecasts for rice, soybeans, peanuts, and cotton were unchanged from a month ago while beef, pork, and broilers production projections were up from the prior month.

Chicago – Corn, soybean, and wheat prices have edged lower since the early January report, although they recovered some in recent weeks. Apart from fuel costs, input costs for spring planting remain steady. Some farmers have purchased lower quality seed than last year to reduce planting costs. Even though higher relative input costs are expected to shift acres toward soybean production and away from corn, farmers are said to be reluctant to plan major changes in crop rotations. Contacts also note plans to return some marginal ground to pasture or hay production, instead of planting corn or soybeans this spring. Hog production remains strong, with no major issues from diseases, which cut production last year. The recovery in hog production has pushed down pork prices substantially, and consumers have begun substituting from beef to pork. Still, , somewhat lower cattle prices have not translated into lower retail prices for beef. Milk prices are falling on rising dairy product stocks and stalled exports. The slowdowns at ports along the west coast hurt exports of many agricultural products.

St. Louis – Close to 90% of the region’s winter wheat crop was rated in fair or better condition. Total red meat production across the southern Midwest and northern Mid-South in 2014 was largely unchanged compared to 2013. Missouri exhibited strong production increases in 2014, offsetting decreases observed in other states in the region.

Minneapolis – Agricultural conditions deteriorated, with livestock and dairy producers faring better than crop farmers. According to preliminary results from the Minneapolis Fed’s fourth-quarter (January) survey of agricultural credit conditions, 70% of respondents said farm incomes had fallen from a year earlier, while 73% reported decreases in capital spending; the first-quarter outlook was similar. Land values and rents fell in 2014 across Minnesota and North Dakota, according to appraisers.

Kansas City – Farm income has weakened further since early January, but cropland values are generally holding steady. Corn and soybean prices edged down in January and early February, and farm income remains well below year-ago levels even as profitability in the livestock sector continues relatively strong. After several years of herd culling, western Plains cattle producers retained more replacement heifers compared with last year, indicating the potential for rebuilding herds in 2015. Following several years of strong gains, District non-irrigated and irrigated cropland values have leveled off while ranch land values continued to rise due to strong demand for good-quality pasture. Lower farm income has trimmed farm loan repayment rates and increased demand for new loans as well as loan renewals and extensions. Looking forward, District contacts look for modest declines in cropland values and further deterioration in farm loan repayment rates amid tighter profit margins for crop producers.

Dallas – Moisture conditions have stabilized for a large portion of Texas and neighboring Southern Plains states, but drought conditions persist in some areas. Cotton prices are below profitable levels for most producers. Prices and export demand for sorghum is high, which may lead more farmers to favor sorghum over cotton when making planting decisions this spring. The strong dollar has slowed agricultural exports. Corn, cattle, wheat, soybeans and dairy prices have declined since early January.

San Francisco – Conditions are mixed. Drought and unseasonably warm weather in parts of the District depressed yields, but the associated increases in many of the prices received by farmers resulted in slightly higher revenues. Farmers remain concerned that the drought will continue, requiring them to leave more acreage fallow. Numerous contacts report that the labor disputes at West Coast ports reduced agricultural exports, as perishable products such as fruits wasted away in storage containers waiting for shipment. Contacts also note that the stronger dollar making U.S. agricultural goods less competitive and limiting exports. ■

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