St. Louis Fed: Survey shows farm income increased Q4
According to the survey, “demand for farm loans in the fourth quarter of 2013 was modestly below its levels from a year ago.” However, respondents expect that the demand for farm loans will pick up in the first quarter of 2014 compared with a year earlier.
Likewise, “there appears to be ample funds available for agricultural loans. Survey respondents reported that more funds were available to prospective borrowers in the fourth quarter than at the same time last year; adequate funds are also expected in the first quarter of 2014.”
During the fourth quarter of 2013, interest rates on fixed-rate loans declined modestly from their third-quarter averages across the three major loan types. By contrast, interest rates on variable-rate loans were up slightly from three months earlier for the three loan types.
Agricultural bankers were asked two special questions in this quarter’s survey. The first question pertains to how farmland values would be affected by a reduction in the federally mandated level of biofuels (ethanol and soy diesel) that are produced as petroleum substitutes and/or fuel additives. All else equal, a reduction in biofuel production would be expected to reduce the demand for corn and soybeans, thereby lowering their price and, potentially, the value of quality farmland used to grow these crops. Forty percent of respondents believe that “a reduction in biofuel production would have no effect on quality farmland values, while 60 percent thought otherwise,” stated the report. Of those who contend that a reduction in biofuel production would result in lower prices for quality farmland, “about a quarter believe that a decline of between 5 and 10 percent is most likely, with another 14 percent expecting quality farmland prices to fall between 10 and 20 percent”.
The second special question asked agricultural bankers to assess the greatest risk to the farm sector in 2014. A little less than two-thirds (63 percent) agreed that the greatest risk stems from lower-than expected commodity prices. According to respondents, “the second-largest risk to the farm sector in 2014 would be higher-than-expected input costs, such as seed, fuel, or fertilizer.” This was mentioned by 15 percent of respondents. Unusual weather was ranked as the next-largest risk. Very few bankers, if any, believe that higher-than-expected interest rates or an unexpected decline in quality farmland values pose a significant risk to the farm sector this year.