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VOL. 127 | NO. 178 | Wednesday, September 12, 2012

Fed Launches Agricultural Report

By Andy Meek

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The Federal Reserve Bank of St. Louis has begun publishing a new agricultural finance report that will be released quarterly.

The first release of the Agricultural Finance Monitor shows that while a strong winter wheat crop and spring growing conditions shored up area farm income expectations during the first half of 2012, the summer drought has lowered expectations for the third quarter.

“Most areas of the Eighth Federal Reserve District remain under extreme or exceptional drought conditions,” the report reads. “Not surprisingly, our survey suggests that the severe drought has had a noticeable impact on current and expected farm incomes and expenses.

“Through the first half of the year, farm income was strong because of favorable growing conditions and a strong winter wheat crop. However, the drought has caused most bank respondents to temper their expectations for farm income in the current quarter.”

The survey was conducted from June 15 through June 29 and was based on responses from almost 90 agricultural banks from within the Eighth Federal Reserve District, which includes Memphis.

The district’s boundaries include seven states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee, and it is broken into four zones. Those are Little Rock, Louisville, Memphis and St. Louis.

Lenders across the district said they expect third-quarter farm income and capital expenditures to be “significantly lower” than the third quarter of 2011 in everywhere except the Memphis area, according to the report.

The report showed that the Memphis and Louisville zones saw the strongest demand for agricultural loans, which were generally healthy across the district during the second quarter. For the third quarter, lenders across the district said they also expected demand for loans to remain higher than year-ago levels, with the strongest expectations in Little Rock and Memphis.

“With a few exceptions, loan demand, availability of funds, and repayments are expected to remain above year-earlier levels in the third quarter,” the report reads. “One might reasonably conclude that the expected increase in demand for farm loans in the third quarter (from a year earlier) is related to the expectation of weaker farm income growth (because of the drought).”

A favorable outlook for the region’s cotton, rice and irrigated corn crops are why lenders in the Memphis zone reported expecting higher income and capital expenditures compared to last year. Also, gains in quality farmland prices across the district over the next three months are expected to outpace gains in ranch or pastureland prices.

The Federal Reserve Bank of St. Louis cautioned against using the new report to draw conclusions about longer-term trends, since it’s the first such survey of its kind in the Eighth District.

The next survey will be published in early November. It will include new questions related to the percentage of loans covered by crop insurance and the drought’s expected impact on farm incomes.

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