Demand for bank loans, loan extensions and renewals is surging among U.S. farmers, and farm incomes are forecast to fall for a third year, as grain and livestock prices remain stubbornly low, according to reports from Federal Reserve Banks on Thursday.
Access to such credit tightened in the fourth quarter, and is expected to continue to be squeezed in 2016, as the rate of farmers repaying existing loans slows and the value of their land falls, according to the quarterly farm economy surveys from the Fed banks of St. Louis, Kansas City and Chicago.
The findings come as the U.S. farm economy continued a downward slide in the fourth quarter of 2015. A strong dollar, sluggish export demand and a glut of grain have kept bearish clouds over the sector and dragged down wheat prices to nearly six-year lows.
The USDA projected earlier this week that farm net incomes in 2016 would drop to $54.8 billion, down nearly 3 percent from a year earlier. These low crop prices also are squeezing cropland values, according to both banks' surveys.
The three Federal Reserve banks cover a wide swath of the U.S. Midwest and the bulk of the nation's corn and soybean production areas.
Cropland values in the St. Louis Fed's region during the fourth quarter fell by 2.5 percent compared to a year earlier, while ranchland and grazing pastures dropped by 5.3 percent.
Cash rents for quality crop land were down 9.5 percent in the fourth quarter compared with a year earlier, while ranchland or pastureland cash rents increased by 8.6 percent, though bankers expect both to decline in the first quarter of 2016.
In the Kansas City Fed's region, farmland values also softened. Irrigated farmland values dropped by 2 percent in the fourth quarter compared to a year earlier, while nonirrigated farmland dropped by 4 percent, according to the bank's survey.
Ranchland values also stalled in the fourth quarter, as feeder cattle prices plummeted more than 25 percent and profit margins in the beef sector eroded.
Land prices are expected to continue dropping well into 2016, and liquidity of farm operations remains among bankers' top concerns, according to the fourth-quarter survey of bankers in the U.S. grain belt.
St. Louis Fed report: http://bit.ly/1mvnMmz
Kansas City Fed report: http://bit.ly/1WgKSJH
Chicago Fed report: http://bit.ly/20YfHpY