Crop and Livestock Producers are Opposites

The Kansas City Fed just released their latest Ag Credit Survey and it certainly highlights the contrast between financial conditions for crop and livestock producers.  In their second chart of the report, it recapped the percentage of producers who indicate a significant improvement, modest improvement, no change, modest deterioration or significant detonation in conditions from one year ago.

About 10% livestock producers show significant improvement and another 40% showed modest improvement while no crop producers showed significant improvement and only less than 10% showed modest improvement.  Almost 65% of crop producers showed modest deterioration.

On a regional level, all states except Oklahoma (which was flat) showed reductions in farm income.

States with large crop production such as Iowa, Nebraska and South Dakota are showing very weak growth in per capita personal income (1% or less).  Almost all of the other states in the country are showing increases in the 2%-5% range.

Farm loan demand has increased sharply and if expectations are met, the survey measure of loan demand will be the highest since the survey began in 1980 (yes it includes all of the 80’s).  Nebraska appears to show the highest expected loan demand for the second quarter of 2015 at about 60% above normal.

With increased loan demand, loan repayment rates have declined significantly.  Over 26% of bankers that responded reported loan repayment declines compared to 17% in the previous quarter.  This is an increase of over 50% in just one quarter.

The trend in carry-over debt is not encouraging.  Nebraska had a 18% increase in 2014 and over 20% is expected for 2015.  The other states all show increases in the rates, except for Oklahoma.

Farmland values decreased in the first quarter compared to 2014 with irrigated farmland showing the first decrease in five years.

All-in-all, the trend is not encouraging, although it is not by any means drastic yet, but it would be nice to see the trend change in the next year or so.

Paul Neiffer, CPA