Many Midwest farmers will be feeling the effect of this summer’s abnormally wet weather for the rest of this year and into 2016. A new agricultural survey from the Federal Reserve Bank of St. Louis suggests farmer income will continue to take a hit into next year in part because of the delayed planting of soybeans and the inability to bale hay.
“The ag sector is going through some difficulties right now,” says Kevin Kliesen, business economist and research officer, Research Division, Federal Reserve Bank of St. Louis
“But I think on balance our survey results suggest that agricultural banks and most of their borrowers are still in pretty good shape financially.”
Many producers are in a good position to make it through this year’s downturn because they are coming off several bumper harvests.
Those good years are also playing a role in the farm income slowdown, by placing downward pressure on crop prices.
"Grain farmers in particular have seen their income steadily decline from a year earlier levels for the past couple of years,” Kilesen tells St. Louis Public Radio.
“At the same time, if you're a livestock producer - particularly cattle - your income levels still look pretty good.”
USDA projections call for continuing farm income declines over the next year or two, but Kilesen says that could be a market correction following several very good years in the sector.
The overall drop in farmer income has a ripple-effect throughout the economy. With less money, agriculture producers tend to rein in spending. That means a drop in household expenditures and capital spending. Survey respondents anticipate that trend to continue, at least for the third quarter.
The new survey also shows farmland values are holding steady, compared to the same period a year earlier. The bankers who responded say the value of ranch or pastureland is up slightly more than 3 percent.
The outlook suggests most lenders are anticipating a further decline in farmland value and a possible drop for ranch or pastureland.
The St. Louis Fed’s Agricultural Finance Monitor includes the responses of nearly 40 agricultural banks in the reserve bank’s eighth district. It includes all or parts of Missouri, Illinois, Arkansas, Indiana, Kentucky, Mississippi and Tennessee.
The Fed defines an agricultural bank as a financial institution with 15 percent of its loans helping to finance production or farmland and equipment purchases.