St. Louis Fed Ag Survey: Recent Flooding May Be Reason for Continued Decline in Farm Income

ST. LOUIS ― Flooding and depressed commodity prices may be some of the factors that caused farm income to decline in the second quarter of 2019, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. It was the highest proportion of bankers reporting lower income since the first quarter of 2016 when considering all observed data.

The survey was conducted June 15, 2019, through June 30, 2019. The results are based on responses from 21 agricultural banks within the Eighth Federal Reserve District, which includes all or parts of seven Midwest and Mid-South states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

Farm Income Continues Decline

For the twenty-second consecutive quarter a majority of bankers who responded to the survey reported a decline in farm income when compared with the same period a year ago. The current index value marks the 22nd consecutive quarter with a value below 100. 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 diffusion index for farm income registered a value of 29. The diffusion index value for the previous quarter was 46.

A Rise in Quality Farmland While Ranchland Values Fall

Quality farmland values rose 2.6 percent in the second-quarter, while cash rents for that property decreased by 2.9 percent relative to a year ago. In contrast, ranchland or pastureland values decreased 1.2 percent compared with a year ago, while cash rents increased by 4.3 percent. Looking ahead, cash rents for the next three months are expected to decline for farmland while they are expected to be stable for ranchland or pastureland.

Flooding and Weather Reflected in Two Special Questions

The first question asked bankers to indicate the degree to which their respective lending area was impacted by flooding or other extreme weather during the first half of the year. Results indicated that, on average, 81 percent of bankers reported a modest-to-significant impact, while less than nineteen percent reported no impact.

The second special question asked bankers to indicate the percentage of borrowers who were, or likely will be, impacted by flooding or extreme weather during the first half of the year. Responses were averaged by category and the results indicated a majority of borrowers were either modestly or significantly impacted. A little over one-third of the responses indicated no impact.