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ST. LOUIS FED AG SURVEY: EIGHTH DISTRICT FARM INCOME CONTINUES TO DECLINE
Source: Federal Reserve Bank of St. Louis news release

Farm income continued to decline in the Eighth Federal Reserve District during the second quarter of 2017 according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis.

The survey was conducted from June 15 - June 30, 2017. The results were based on the responses of 35 agricultural banks located within the boundaries of the Eighth Federal Reserve District. The Eighth District comprises all or parts of the following seven Midwest and Mid-South states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. The survey also included three special questions that focused on the financial condition of farmers and the impact of flooding on farm income.

Farm Income Continues to Decline
Agricultural lenders continued to report year-over-year declines in farm income. Based on a diffusion index methodology with a base of 100 (results above 100 indicate higher income compared with the same quarter a year earlier; results lower than 100 indicate lower income), the diffusion index for farm income during the second quarter of 2017 was 50. This represents the 14th consecutive quarter of an income index below 100.

"The cumulative effect of multiple-year net income declines has weakened many customers' financial stability and influenced many to retire or quit," said an Arkansas lender. "Farm program payment delays have resulted in cash flow problems for operations that have good profit margins."

According to a Tennessee lender, "In the past three years, our agriculture customers have experienced low prices, but with adequate production in most areas. Some customers who have experienced financial difficulties the past two years cannot survive another large loss for 2017."

Meanwhile, levels of household spending and capital spending, both closely tied to farm income, also continued to stagnate.

Quality Farmland Values, Cash Rents Decline Slightly; Ranchland and Pastureland Values Rise

Quality farmland values declined by less than 1 percent in the second quarter, while cash rents declined 1.8 percent relative to a year ago. Meanwhile, ranchland and pastureland values rose 4.5 percent and rents rose by 7.9 percent.

Looking ahead, the majority of lenders expect quality farmland values and rents as well as ranchland and pastureland values and rents to decline in the third quarter compared to a year ago.

Special Questions Regarding Loan Portfolios and Bankers' Top Concerns
The survey asked bankers three special questions including the financial condition of borrowers, farm income projections, and the effect of springtime flooding in the region.

The first question asked bankers to assess the overall change in the financial condition of their borrowers. In 2Q 2016, 14 percent of borrowers had significant deterioration compared with a year earlier, however no responses indicated significant deterioration in 2017. In 2016, 66 percent of respondents assessed moderate deterioration, whereas 72 percent made the same assessment a year later. Lastly, lenders responded that 17 percent of borrowers had no change in financial condition in 2016, while 25 percent responded with no change in 2017. Overall, lenders feel the financial condition of their borrowers deteriorated in 2017, but not as significantly as in 2016.

The second question asked bankers about the farm income projections issued in March 2017 by the University of Missouri's Food and Agricultural Policy Research Institute. The Institute projects a roughly 8 percent decline in net farm income this year. Three-quarters of lenders assessed that number to be about right, whereas the remaining respondents were evenly split among those assessing the projection to be too high or too low.

The final special question asked respondents to gauge the springtime flooding effects on farm income for the year. Fifty-three percent reported the flooding did not change their expectations, while slightly fewer responded that it modestly lowered their expectations.

An Illinois banker summed up concerns in that area by stating, "Crops are planted, have emerged, and are in good condition. The biggest concerns today are low commodity prices and the future of government price supports."


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