US Midwest, Mid-South farm income down, land value up

Values expected to continue rising in fourth quarter

The 2012 U.S. drought has lowered expectations of farm income potential across much of the Midwest and Mid-South, but agricultural lenders expect crop insurance and higher crop prices to help mitigate much of the impact, according to third-quarter survey results from the Federal Reserve Bank of St. Louis. In addition, farmland values across the entire region continued to rise throughout most of the District.

The survey, conducted from September 15 through September 28, was based on the responses of 75 agricultural banks located within the boundaries of the Eighth Federal Reserve District, which is comprised of all or parts of the following seven Midwest and Mid-South states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. The District is broken into four zones: Little Rock, Louisville, Memphis and St. Louis.

Overall, responses from District bankers suggest that farm income and capital spending were significantly lower in the third quarter 2012 compared with third quarter 2011. The third quarter index value stood at 80, compared with 140 for the second quarter. Looking forward, lender expectations were lower for the fourth quarter, with an average Eighth District expectations index value of 77.

Not all of the District’s zones saw reduced farm incomes: the Memphis zone reported both higher income and capital spending in the third quarter, compared to the same time in 2011, with its index estimate coming in at 136 for the third quarter. Memphis lenders also indicated they expect that income and spending will remain higher in the fourth quarter as well, as indicated by an index expectations value of 125. In the Memphis zone, which includes northern Mississippi, many crops are irrigated; a factor that has helped offset the impact of the drought. 

Both the value of non-irrigated cropland and the value of ranch and pastureland in the Eighth District were expected to continue to rise slightly over the next three months. Cash rents are also expected to rise.

Lenders estimated that District quality farmland values averaged $4,886 per acre in the third quarter, with ranch and pastureland averaging $2,345 per acre. Lenders also expect values to continue to rise in the fourth quarter, with quality farmland expectations averaging 127 in diffusion index values, and ranch and pastureland values averaging 108. Compared with the second quarter’s survey, quality farmland values were up 1.6 percent from 2011 in the Little Rock zone; down 3.4 percent in the Louisville zone; up 5.9 percent in the Memphis zone; and up 5.2 percent from 2011 numbers in the St. Louis zone. 

Ranch and pastureland estimates in the third quarter averaged $2,094 per acre in the Little Rock zone with a fourth quarter expectations index value of 111; $2,300 in the Louisville zone with a fourth quarter expectations index value of 133; $1,695 per acre in the Memphis zone with a fourth quarter expectations index value of 82; and $2,621 per acre in the St. Louis zone with a fourth quarter expectations index value of 112.