ST. LOUIS, Nov. 15, 2012 ― While the drought of 2012 continues to dampen expectations of farm income potential across much of the Midwest and Mid-South, agricultural lenders expect crop insurance and higher crop prices to help mitigate much of the impact. In addition, farmland values across the entire region continued to rise, according to third quarter survey results from the Federal Reserve Bank of St. Louis.
The Agricultural Finance Monitor survey, conducted from September 15 through September 28, is based on the responses of 75 agricultural banks located within the boundaries of the Eighth Federal Reserve District, which is comprised of all or parts of the following seven Midwest and Mid-South States: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. The District is broken into four zones: Little Rock, Louisville, Memphis and St. Louis. For this survey, an agricultural bank is defined as a bank for which at least 15 percent of its total loans outstanding finances agricultural production or purchases of farmland, farm equipment, or farm structures.
This is only the second such survey conducted for the Eighth District, and its results should not be used to draw conclusions about longer-term trends, noted the Federal Reserve Bank. The survey was developed and conducted with the help of the Kansas City Fed.
Overall, responses from District bankers suggest that farm income and capital spending were significantly lower in the third quarter 2012 compared with third quarter 2011. However, not all of the District’s zones saw reduced farm incomes: the Memphis zone reported both higher income and capital spending in the third quarter, compared to this time last year. Memphis lenders also indicated they expect that income and spending will remain higher in the fourth quarter as well.
The report notes that in the Memphis zone, which includes northern Mississippi, many crops are irrigated; a factor that has helped offset the impact of the drought.
Meanwhile, both the value of nonirrigated cropland (or quality farmland) and the value of ranch and pastureland in the Eighth District were expected to continue to rise slightly over the next three months, according to the report. Cash rents are also expected to rise.
Lenders estimated that District quality farmland values averaged $4,886 per acre in the third quarter, with ranch and pastureland averaging $2,345 per acre. Lenders also expect values to continue to rise in the fourth quarter as well, with quality farmland expectations averaging 127 in diffusion index values, and ranch and pastureland values averaging 108.
For this survey, lenders were also asked how the drought directly impacted farm income in their respective areas and to estimate the share of their agricultural production loans that were covered by crop insurance.
Overall, the banker responses regarding drought impact indicated substantial variability, explained the report. Close to 100 percent of respondents in the St. Louis and Louisville zones reported the drought would decrease farm income, while only close to 50 percent of Little Rock and Memphis lenders reported this would be the case in their areas. The bank noted much of this geographical discrepancy is related to the use of irrigation on a larger share of farmland in the Little Rock and Memphis zones.
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