For the first quarter of 2018, farm income continued to decline for the 17th consecutive quarter, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. Quality farmland values and cash rents also fell slightly during in the first quarter from a year earlier.

The survey was conducted from March 15, 2018, through March 31, 2018. The results presented here are based on the responses from 34 agricultural banks within the boundaries of the Eighth Federal Reserve District.  The Eighth District includes all or parts of seven Midwest and Mid-South states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

Farm income continues to decline

The majority of agricultural bankers continue to report declines in farm income relative to a year earlier. Based on a diffusion index methodology with a base of 100 (results above 100 indicate proportionately more bankers report higher income compared with the same quarter a year ago; results lower than 100 indicate proportionately more bankers report lower income from a year earlier), the first-quarter index value for farm income was 67.

One Missouri lender attributed the decline in farm income to diversification. “In the past, producers sought off-farm income to bridge cash flow shortages. Today, larger producers are seeking to diversify (excavating, construction, trucking, and new livestock confinement) to provide additional income by using existing equipment and labor. Consolidation continues,” the lender said.

“Older farmers are discontinuing operations at a fast pace to secure equity for retirement. Few farmers and their bankers are interested in acquiring land due to really tight cash flow coverage ratios. Few producers start up in agriculture unless ushered in by a retiring producer.” Overall, the survey found bankers modestly optimistic about the near-term prospects for farm income.

Quality farmland values and cash rents both fall

Quality farmland values fell 1.4 percent in the first quarter from a year earlier, the first decline since the second quarter of 2017. Ranchland or pastureland values rose sharply for the second consecutive quarter.

Similarly, cash rents for quality farmland values declined slightly in the first quarter from a year earlier, while cash rents for ranchland or pastureland increased.

This survey also included questions regarding resource operations financing, off-farm income and the servicing of farm-related debts. Nearly 97 percent reported that they lend to row crop farmers; 73 percent lend to those with cattle operations.

Only a tenth, a fifth, and a quarter lend to catfish, poultry, and other livestock operations, respectively.

Regarding off-farm income, 41 percent reported that one-quarter of their farmer-borrowers had off-farm income, 38 percent stated between a quarter and half had off-farm income, and 22 percent reported more than half had off-farm income.

On servicing farm-related debts without off-farm income, more than half reported 25 percent of their farmer-borrowers would have severe financial difficulty, 22 percent reported between a quarter and a half would have severe difficulty, the remaining 22 percent stated more than half would face severe financial difficulty without off-farm income.

EDITOR’S NOTE — Headquartered in St. Louis, with branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the states that comprise the Federal Reserve’s Eighth District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee  and northern Mississippi. The St. Louis Fed is one of 12 regional Reserve banks that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. As the nation's central bank, the Federal Reserve System formulates U.S. monetary policy, regulates state-chartered member banks and bank holding companies, provides payment services to financial institutions and the U.S. government, and promotes financial literacy, economic education, and community development.