St. Louis Fed: Farm Income, Land Values Down

John DavisAgribusiness, farm land, Land

stlfedresA new report says farm incomes and land values continue their downward slide in the Midwest and Mid-South, and those trends are expected to continue. In its first quarter of 2015 survey, the Federal Reserve Bank in St. Louis blames the slump on declining grain prices worldwide.

Bankers noted a continued decline in farm income compared with the same period a year earlier. Based on a diffusion index methodology with a base of 100 (results above 100 indicate proportionately higher income compared with the same quarter a year earlier; results lower than 100 indicate lower income), the farm income index value was 49 for the first quarter.

This was the third consecutive quarter that this value fell below 100, and represented the lowest level since the survey began in the summer of 2012. Looking ahead, a large percentage of bankers expect further declines in the second quarter.

Corresponding with the decline in farm income, household expenditures and capital spending also fell during the first quarter.

“Lower grain prices are finally changing the psychological mindset for producers,” a Missouri banker noted. “Most producers are not able to lower operating expenses significantly and are looking at troublesome cash-flow projections. Grain prices will likely remain in this price range for several years and will have a huge impact on lenders.”

Farmland values dropped an average of 2.5 percent during the same period compared to a year earlier. This was the largest quarterly percentage decline since the survey began in the summer of 2012. The value of ranch or pastureland declined 1.6 percent, but unlike farmland prices, ranch or pastureland values are expected to rise.