Upper Midwest farm incomes decreased in the second quarter of the year according to a survey of ag lenders from the Federal Reserve Bank of Minneapolis.
The Ag Credit Survey polled lenders in the Fed's 9th District, which includes Minnesota and the Dakotas.
Eighty-one percent of ag lenders surveyed by the Minneapolis Fed said farm incomes fell in the second quarter compared to the same period last year.
The decline has been a trend for two years and is only been getting worse, said Joe Mahon, regional Outreach Director for the Minneapolis Fed.
“Prices for those core row crops that they're producing are lower than they were a few years ago,” Mahon said. “And that's translating into lower incomes.”
Mahon made his comments prior to a Federal Open Market Committee blackout period.
This year’s weather has mostly been favorable for farmers, which has led to strong crop output for the ninth district states. But farmers are also selling crops in storage from previous years. At the same time, the weather’s been favorable for international farmers as well. This has made crop prices falter with the abundant crop supply.
The loss of income is resulting in farmers spending less on capital expenditures. Sixty-nine percent of ag lenders surveyed said farmers aren’t purchasing as much equipment as last year.
Mahon said he’s seeing farmers opting to keep their current equipment and have it fixed. They’re also buying used equipment.
Throughout this two-year period of declining farm finances, Mahon said farmers’ household spending had remained steady until now. About a third of the lenders reported seeing a decrease in household spending.
“This prolonged period of falling farm incomes is starting to lead to a little bit of belt tightening and cutting back on spending by farm households,” Mahon said.
Less income, more debt
“Prices are below break even for most producers,” an ag lender in Minnesota told the Minneapolis Fed. “A majority will have to refinance [loans].”
Just over a third of banks said farmers had renewed or extended their loans. More than half said farmer demand for loans grew from last year.
At the same time, many farmers are falling behind on loan payments. Forty-three percent of lenders said the rate of repayment on agricultural loans decreased compared to a year ago, weakening overall credit conditions.
Click here to see more...