The U.S. farm economy faces more pressure this quarter from low grain prices and stubbornly high costs, with incomes down across much of the country's most important cropland, quarterly reports from Federal Reserve banks show.
Second-quarter surveys released on Thursday by the Federal Reserve banks of Kansas City and St. Louis also suggested the value of cropland would decline further in the third quarter.
The rural economy has been hit by recent bumper harvests that have pushed grain prices to five-year lows and by a strong dollar that has hurt exports. As a result, farmers have cut back spending on their businesses.
The U.S. Department of Agriculture has forecast overall farm income will drop by a third this year to $73.6 billion, its lowest since 2009.
"Bankers reported a continued drop in farm income compared with the same period a year earlier," the St. Louis Fed report said. "Looking ahead, a large percentage of bankers expect further declines in the third quarter."
The St. Louis survey used an index for income that registered 31 for the second quarter and 35 for the third. Numbers between 0 and 99 indicate expectations of decreasing income.
"Our trade area is primarily cash grain, and the lower grain prices will have a negative impact on farm income, prompting producers to reduce spending for both business and household," said an Illinois lender in the St. Louis report.
The Kansas City Fed reported its ninth consecutive quarterly decline in farm incomes. Only Oklahoma showed gains as profits for cow and calf producers lent support.
The split in performance between crop and cattle farming was also evident in land values. Values for ranchland in both regions increased, while those for cropland were steady or declined.
The Federal Reserve Bank of Chicago said its survey overall "indicated ongoing weakness in farmland values," but said it felt high cattle and egg prices had helped curb the fall in its district to 3 percent from a year ago in the second quarter.
Cash rents fell 6.4 percent for quality farmland in the St. Louis Fed region in the second quarter, the largest drop since the survey started in the third quarter of 2012. Rents could decline further in the next three months.
The three Federal Reserve banks cover some of the most important grain and livestock areas in the United States, including the central and southern Plains and the Midwest. (Reporting by Jo Winterbottom; Editing by Ken Wills, Lisa Von Ahn and David Gregorio)