The outlook for the beginning of 2021 is positive, continuing a trend that started in the final quarter of 2020, according to the latest survey of agricultural lenders from the Federal Reserve Bank of Minneapolis.

“2020 was much better than expected,” wrote a Minnesota banker in the Minneapolis Fed's fourth-quarter agricultural credit conditions survey of conditions in the Ninth District, which includes Montana, North and South Dakota, Minnesota, 26 counties in Wisconsin and Michigan's Upper Peninsula. “We had very good yields in our trade area, combined with better prices and government payments.”

Income and spending

Good yields, a commodity price rally and extra government payments from the Coronavirus Food Assistance Program boosted farm income in 2020. More than three-quarters of lenders responding to the Minneapolis Fed survey reported that farm incomes increased in the fourth quarter of 2020 compared to the fourth quarter of 2019. Only 6% said incomes declined. Farmers didn't keep that money, instead 40% of lenders said capital spending increased. Another third of lenders reported flat capital spending. One-fifth of respondents reported an increase in farm household spending.

Loans

Improved financial conditions influenced loans too. Here's what lenders said:

Cash rents and land values

Cropland values increased moderately in the final three months of 2020, according to the survey, a reversal of the pattern of decline in recent years. Non-irrigated cropland values increased 3.6%, on average, across the district compared with a year earlier. Ranchland values rose 2.9%.

Cash rents also increased. Cash rents for non-irrigated cropland increased 6.9% on average.

Lenders in North Dakota reported the largest increase in land values, with non-irrigated land up 8.5%, while Wisconsin logged a 6.6% decrease in land values. Western Wisconsin also leads the nation in the number of farm bankruptcies.

In Montana, a lender noted an unexpected bump in demand for land due to the pandemic.

“Ag real estate has seen an increase in value due to the influx of people from other states moving here during COVID and buying properties,” the lender wrote in a survey comment.

Concerns for 2021

Price swings were, by far, the biggest worry for lenders for the year ahead, with 40% citing prices as their top concern for 2021. Another concerns include: growing season challenges, 24%; trade conflict, 13%, and declining government support, 11%.

But lenders are generally optimistic, with 60% predicting that farm income will increase in the first quarter of 2021. Another 30% of respondents think income will be stable.

About half expect no change in farm household spending and 40% expect increases in capital spending. Slightly more than half expect no change in loan demand and a third expect an increase in demand. More than half, 58% of lenders, don't see loan repayment changing. Lenders also expect loan renewals and extensions to remain steady.

Source: Minneapolis Federal Reserve, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.