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Lenders: Pessimistic ag outlook

Federal Reserve Bank quarterly survey points to lower commodity prices and higher costs.

Kevin Schulz, Editor

May 20, 2024

3 Min Read
field of young corn plants
HOPE NEEDED: Ag lenders in the Ninth District of the Federal Reserve Bank of Minneapolis are pessimistic about the current state of agriculture, with low commodity prices and high operating costs. Kevin Schulz

Farm lenders are pessimistic after the first quarter of the year and through the rest of 2024.

Each quarter the Federal Reserve Bank of Minneapolis surveys ag lenders in the Ninth District, which encompasses all of Minnesota, South Dakota, North Dakota and Montana, as well as portions of Wisconsin and Michigan. In April, 60 ag lenders across the region were surveyed for the pulse reading on agriculture. Joe Mahon, director of regional outreach for the Federal Reserve Bank of Minneapolis, acknowledges that though it is a larger sample than usual, 60 is “a pretty good turnout compared to past surveys.”

Mahon presented the survey’s findings in a webinar May 13, stating that lenders overwhelmingly report farm incomes are down. “Really what’s going on is, we’re seeing most agricultural commodity prices have decreased — even though some of them that have perked up a little bit recently,” he says.

Land values across the Ninth District are up 3.9% on nonirrigated farmland in the first quarter of 2024, compared to the same period a year ago. Minnesota land values are up 2%; North Dakota up 9%, South Dakota up 4%, Wisconsin up 18% and Montana up 25%. Mahon says the Montana estimate may be overstated due to a small sampling of lenders responding to the survey.

Minnesota cash rents went down 0.7% year over year, while North Dakota, South Dakota and Wisconsin saw increases of 5%, 2.8% and 6%, respectively.

Deflated commodity prices are compounded by high operating costs, so farmers are “still paying some of the kind of inflated prices for fertilizer, for chemical, certainly for fuel as well,” Mahon says. “The prices that they pay haven’t come down in tandem with agricultural commodity prices, and that’s leading to some depression of margins.”

He adds that this is consistent with the most recent USDA forecast for farm incomes for 2024, which were expected to see large declines on both on a net cash-income basis and a net farm-income basis. “In fact, in nominal terms, the largest or one of the largest declines on record at a national level,” Mahon says.

Of the survey respondents, 70% observe that farm income decreased in the first quarter on a year-over-year basis, while 17% saw increases in farm income and 13% called farm income unchanged.

Good news: Moderation in interest rates

“One good bit of news is, we’ve seen some moderation in interest rates,” he says. “They actually ticked down at least slightly on a quarterly basis. They are still heavily elevated relative to a year ago.”

Possibly correlated to the moderating interest rates, but also the lower income, 55% of ag lenders saw an increase in loan demand, 23% saw an increase in loan renewals, but only 5% saw an increase in loan repayment rates. Sixty-eight percent saw no change in repayment rates and 75% saw no change in loan renewals.

“That’s kind of an indicator of a tighter financial picture that farmers are facing,” he says.

To coincide with the fall in farm income, Mahon reports that 35% of the ag lenders saw household spending increase, but 53% saw capital spending decrease.

Purchases of vehicles and consumer items fall under farm household spending, while capital spending includes purchases made as an investment on the farm.

Moving forward

Ag lenders are also asked to look ahead, and negativity looms into the second quarter of the year. Three-quarters of ag lenders surveyed expect farm income to decrease, with only 8% expecting an increase. Household spending and capital spending are expected to decrease in this quarter with 27% and 62%, respectively, of lenders eyeing drops. To be fair, 52% and 30% of lenders see household and capital spending, respectively, to remain unchanged.

“This is kind of an indicator that more lenders are expecting belts to start tightening among farm operations as the cash picture continues to deteriorate,” Mahon says.

Lenders foresee an “overwhelmingly stable outlook for [loan] renewable activity,” he says, “so it is ‘steady as she goes’ in terms of financial and banking indicators, even though the income picture is down.”

About the Author(s)

Kevin Schulz

Editor, The Farmer

Kevin Schulz joined The Farmer as editor in January of 2023, after spending two years as senior staff writer for Dakota Farmer and Nebraska Farmer magazines. Prior to joining these two magazines, he spent six years in a similar capacity with National Hog Farmer. Prior to joining National Hog Farmer, Schulz spent a long career as the editor of The Land magazine, an agricultural-rural life publication based in Mankato, Minn.

During his tenure at The Land, the publication grew from covering 55 Minnesota counties to encompassing the entire state, as well as 30 counties in northern Iowa. Covering all facets of Minnesota and Iowa agriculture, Schulz was able to stay close to his roots as a southern Minnesota farm boy raised on a corn, soybean and hog finishing farm.

One particular area where he stayed close to his roots is working with the FFA organization.

Covering the FFA programs stayed near and dear to his heart, and he has been recognized for such coverage over the years. He has received the Minnesota FFA Communicator of the Year award, was honored with the Minnesota Honorary FFA Degree in 2014 and inducted into the Minnesota FFA Hall of Fame in 2018.

Schulz attended South Dakota State University, majoring in agricultural journalism. He was also a member of Alpha Gamma Rho fraternity and now belongs to its alumni organization.

His family continues to live on a southern Minnesota farm near where he grew up. He and his wife, Carol, have raised two daughters: Kristi, a 2014 University of Minnesota graduate who is married to Eric Van Otterloo and teaches at Mankato (Minn.) East High School, and Haley, a 2018 graduate of University of Wisconsin-River Falls. She is married to John Peake and teaches in Hayward, Wis. 

When not covering the agriculture industry on behalf of The Farmer's readers, Schulz enjoys spending time traveling with family, making it a quest to reach all 50 states — 47 so far — and three countries. He also enjoys reading, music, photography, playing basketball, and enjoying nature and campfires with friends and family.

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