Fed Bank Notes Declining Farm Income from COVID-19

Posted on 05/14/2020 2:26 PM

The devastating economic impact on farmers and ranchers from COVID-19 was already apparent by the end of March, according to the quarterly survey of agriculture bankers conducted by the Federal Reserve Bank of Kansas City. The bank notes corn and cattle prices declined 15% between January 1 and March 31 and adds, "Even after the first quarter survey, the declines continued through early May, putting added downward pressure on revenues for producers."

In its report, the bank states the share of bankers reporting lower farm income and loan repayment rates increased sharply and expectations for coming months also turned more pessimistic. However, it notes lower interest rates and relatively stable farm real estate values provided some support to farm finances.

The Fed bank serves Kansas, western Missouri, Nebraska, Oklahoma and the Mountain States of Colorado, northern New Mexico and Wyoming.

After improving slightly at the end of 2019, the bank says the share of bankers reporting lower farm income increased sharply in the first quarter. About 60% of respondents across the region indicated farm income was lower than the same time a year ago, the highest share since early 2017. The outlook was more pessimistic in every state except the Mountain States of Colorado, Wyoming and New Mexico, with nearly three-fourths of all banks indicating they expect farm income to be less than last year.

60% of Bankers Report Lower Farm Incomes in Q1

Percent of bankers reporting decline in farm incomes
Federal Reserve Bank of Kansas City

Following a trend comparable to farm income, the percent of respondents reporting lower rates of repayment also increased. Over half of all banks continued to report no change in repayment patterns, but about 40% reported a decline, the largest share since early 2017. The outlook also was more pessimistic in every state except the Mountain States.

 

40% of Bankers Report Lower Repayment Rate

Percent of bankers reporting lower repayment rates
Federal Reserve Bank of Kansas City

The reduction in farm income and revenue also continued to put steady, but modest pressure on liquidity, the bank notes. About 15% of all originated or renewed farm loans throughout the region involved restructuring to meet short-term funding needs. That rate is comparable with the past two years. Instances of restructuring increased slightly in Nebraska and Oklahoma and declined slightly in other states.

 

15% of Bankers Report Loan Restructuring Was Required for Loan Renewals

Percent of bankers reporting loan restructing

Despite a more pessimistic environment for farm income and credit conditions, farmland values remained relatively steady. Both nonirrigated cropland and ranchland values increased slightly for the second consecutive period. The value of nonirrigated cropland rose 1.4% and ranchland increased 2.7%. Irrigated cropland, however, declined 0.5%.  Looking to the next quarter, slightly less than 70% of bankers indicated they expect nonirrigated farmland values to remain unchanged compared with a year ago while about 30% anticipated a decline.

Farm/Ranchland Values Remain Relatively Stable

Percent change in farmland values
Federal Reserve Bank of Kansas City

 

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