KC Fed Reports Drought-Reduced Income Boost Farm Loans

The Kansas City Federal Reserve Bank just released their third quarter Agricultural Credit Conditions report.  The report indicated that the drought caused lower farm income for the quarter which caused farmers to increase their farm operating loans.  Capital spending plummeted in the quarter.  This could have been caused by the drought or perhaps the lower Section 179 limits and 50% bonus depreciation may have already reduced farmers appetite for more equipment.

The sharpest income declines emerged in cattle feedlot and hog operations.  With the drought, feed prices appreciated over the previous year and quarter and summer pasture dried up.  The bankers also reported that corn and soybean income fell below last years levels, however, wheat farm income was actually higher than last year.  The drought came too late to affect wheat production.

Bankers expressed concerns about the drought effect extending into 2013.  The spike in feed costs has already resulted in some herd liquidations.  The reported closing of a Cargill beef plant in Texas last week is probably primarily caused by these conditions also.

Bankers reported the steepest quarterly increase in farm loans since the first quarter of 2010.  This was offset with the lowest demand for equipment financing since the same early 2010 period.

Even with the drought, farmland prices continue to rise.  The district saw a 24% overall rise in non-irrigated farmland with Nebraska leading at 30% with Kansas and Missouri right behind at 22-23%, respectively.  About three-quarters of the bankers thought that farmland values would stabilize for 2013.

Paul Neiffer, CPA