Farm Finances Continue to Weaken Amid Ongoing Uncertainty
Farm credit conditions in the Federal Reserve’s Tenth District continued to deteriorate steadily in the third quarter of 2019. Despite a slight increase in the price of some agricultural commodities and additional support from government payments, farm income and loan repayment rates declined at a modest pace. According to District bankers, agricultural economic conditions in the quarter were influenced by uncertainty about crop production, agricultural trade and other factors that contributed to commodity price fluctuations. Persistent weaknesses in the sector put further pressure on farm finances and signs of modest increases in credit stress remained. Farmland values, however, remained stable, and provided ongoing support for the sector.
Data and Information
Credit Conditions | Fixed Interest Rates | Variable Interest Rates
Land Values | Banker Comments | Past Issues
Farm Income and Borrower Finances Farm income in the region remained relatively weak and continued to decline, according to the Tenth District Survey of Agricultural Credit Conditions. Despite slightly higher crop prices and support from trade relief payments, farm income decreased compared with a year ago (Chart 1). Recent volatility in crop prices appeared to affect bankers’ perceptions of agricultural conditions in the third quarter, and respondents indicated that farm income declined more than had been expected a quarter earlier. In August, cattle prices dropped sharply in response to substantial disruptions at a major beef processing facility, which weighed on income in the third quarter and affected expectations.
Farm income decreased from a year ago across all states in the region, with some variation in the pace of decline. Compared with other District states, crop conditions through October were slightly worse in Missouri and slightly better in Nebraska. Alongside production variability, income weakened at the fastest pace in Missouri, following sharp declines in 2018 (Chart 2). In addition, a steep decline in cattle prices also contributed to lower farm income across other District states.
Farm borrowers made additional cuts to spending in response to an ongoing environment of subdued revenue. Similar to farm income, farm household and capital spending continued to decline while the outlook for spending also has been affected by recent volatility in commodity prices (Chart 3). Amid tight profit margins, operators have reduced capital spending at a consistently faster pace than household spending; bankers indicated they expect that trend to continue.
Ongoing reductions in farm income put further downward pressure on liquidity positions of crop producers. Working capital deteriorated at a modest pace throughout the District for the sixth consecutive year, but weaknesses were less severe than in prior years (Chart 4). About 75 percent of bankers reported that working capital of crop farmers deteriorated at least modestly in 2019, compared with over 90 percent in 2016........MUCH MORE
