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First Quarter 2008
Federal Reserve Bank of Dallas
The first quarter 2008 survey suggested cautious optimism in the Eleventh District agricultural community. Respondents from several regions indicated that dry conditions adversely affected planted crops and hampered pasture growth. Rising fuel, feed and fertilizer costs strained operating margins. Some bankers reported a rise in 2008 lines of credit and in demand for operating loans because of these cost increases. The farm bill impasse is causing uncertainty among agricultural stakeholders, and volatility in commodity prices is making it difficult for producers to forward price their 2008 production. Among positives, respondents noted that lower interest rates are helping offset some of the increased financial strain. Additionally, bankers in the Plains and North Central Texas regions reported that favorable crop yields and high commodity prices boosted 2007 farm revenues, which has improved loan repayment rates and reduced overall loan demand.
Additional highlights from the survey:
- Higher grain prices have substantially increased feed costs, reducing the number of calves being put on feedlots and lowering demand for feeder-cattle loans. Twenty-nine percent of respondents anticipate making fewer feeder cattle loans in the next three months, up from 16.4 percent last quarter.
- Farmland values have continued to rise, albeit at a slowing pace. While demand for farmland for investment and recreational use continues to drive up prices, some respondents say that demand for agricultural real estate has softened and farmland is taking longer to sell. Twenty-six percent of respondents anticipate making fewer farm real estate loans, up from 15.4 percent a year ago.
- High steel prices and increased input costs are deterring producers from investing in new farm equipment. Consequently, 17.9 percent of respondents expect to make fewer farm machinery loans over the next three months compared with 5.2 percent last quarter.
11th District Agricultural Land Values
First Quarter 2008
Comments
District bankers were asked for
any additional comments concerning agricultural land
values or credit conditions. These comments have been
edited.
Region 1—Northern High Plains
We’re well into our second straight quarter of extremely dry conditions. Input costs (fuel and fertilizer) have climbed drastically. Forward pricing of commodities has been extremely difficult because of the volatility in the futures market.
While sales of water rights have bolstered land values at present, the future value of surface rights (for agricultural purposes) is uncertain.
The past four years have yielded the most successful crop production in the history for our area. Producers’ balance sheets are healthy. However, with the ongoing drought-like conditions and rising input and crude oil costs, our customers are in for a wild ride. Operating without a farm bill makes it even more risky. Producers cannot forward price their upcoming production because of the current market conditions in commodity prices. Banks have cut off funds to middlemen, merchants and processors, affecting their ability to hedge the upcoming crop year’s production. The unpredictable weather and cash flows could erase the previous four years’ gains.
Land values continue to increase due to grain prices and investors entering the market.
Region 2—Southern High Plains
We need rain; wheat is stressed, and we need moisture for planting cotton. A farm program would certainly be beneficial.
The 2007 cotton crop has finally been ginned and funds received to pay loans. Most farmers have sufficient funds to start the 2008 crop year, resulting in lower loan demand for the first quarter. A good rain is needed before the 2008 crop year can begin in earnest.
Most customers are requesting increases in 2008 crop lines due to the high cost of fuel, fertilizer and seed. Prices for the 2007 cotton crop have been good. Customers are concerned by the lack of a farm bill and the continuing rise in expenses.
Region 3—Northern Low Plains
Deflationary concerns have reduced the demand for real estate of all types. Increasing input costs and the lack of any farm bill have farmers searching for the right combination of crops for a profitable year in 2008. Time is expiring on passage of a farm bill. Farmers need to make decisions for the 2008 crops.
High wheat prices have essentially stopped feeder cattle from being put on wheat pasture. This has decreased cattle loan demand. Rain is needed to make a wheat crop. Increases in input costs will increase requests for farm operating loans. Land price increases seem to be slowing. Most rural real estate buyers are recreational users.
Region 4—Southern Low Plains
The lack of stability in the farm program requires a tight cash flow.
We could not have scripted a better 2007 for agriculture. Better than average crop yields are necessary for 2008 because of increased energy, fuel and fertilizer prices. Steel price increases have affected the price of new machinery.
Region 5—Cross Timbers
We have seen some slowing of land price escalation. Farm real estate requires a slightly longer period to sell.
Recent rain and snow started growth in the pastures. However, moisture is still needed.
Region 6—North Central Texas
Inflated fertilizer and fuel prices are causing farmers to run short of operating capital.
Gas and diesel prices are going to be a problem. We will have to see how the 2008 presidential election pans out.
Input and diesel costs are hard to fathom. Both crop yields and prices had better be good at harvest time.
We have ample moisture, and 90 percent of corn and milo have been planted. A big percentage is already up and doing well. Cotton planting will begin within the next week. Most are planting more grain than cotton; it is estimated that there will be around 20,000 acres of cotton planted in Williamson County. The negative is the additional cost of production: fuel, fertilizer, chemicals. One positive note is that interest costs are going down. Hopefully, favorable weather conditions will produce average to above average crop yields. A large number of producers will continue to forward contract grain.
Input costs for farmers and ranchers have escalated recently, putting pressure on operating margins. Feed, fertilizer and fuel prices have increased dramatically. There is a very limited agricultural real estate market in our area.
Region 7—East Texas
Most crops have been turned to small grain to take advantage of the ethanol prices. I expect prices to hold, but production costs will increase because of energy costs. This has hurt support enterprises such as equipment dealers. We should have adequate moisture for planting and anticipate having good crop yields this year.
Region 8—Central Texas
Demand for real estate is softening, resulting in lower values. Dry weather patterns and high fuel, feed and fertilizer costs are putting some marginal agricultural operations in a cash-flow crunch.
We need more rain. The winter oats and rye grass are doing fair. Hay feeding has picked up in most areas. Most ranchers are worried about the high cost of diesel and fertilizer. Cattle prices have remained steady at area sale barns, with breakevens on fat cattle being pushed higher due to high grain costs. Land prices remain good, though there is a lack of listings of good rural properties.
Commodity prices, as well as seed, fertilizer and fuel costs, are way up. We are seeing the highest costs per acre that we’ve ever seen. Good used equipment is selling briskly. However, farmers are optimistic.
The price of fuel, fertilizer and feed will cut deeply into profits, hindering farm/ranch expansion opportunities. Lower interest rates will mitigate this situation some. On a positive note, we have had good rains to date.
Region 11—Trans-Pecos and Edwards Plateau
It has been very dry since last fall. The few ranches that sold at year-end went to nonagricultural producers. Oil and gas leases are coming into the area.
Region 12—Southern New Mexico
Conditions in most of New Mexico are very dry. The snow melt looks good for moisture. Farm prices are very good. Livestock prices are going down daily. Dairy remains stable.
Land values in our area have increased due to high corn and wheat prices.
| Quarterly
Survey of Agricultural Credit Conditions
is compiled from a survey of Eleventh
District agricultural bankers. This publication
is prepared by the Federal Reserve Bank
of Dallas and is available without charge
by writing to the Research Department,
Federal Reserve Bank of Dallas, P.O. Box
655906, Dallas, TX 75265-5906, or by telephoning
(214) 922-5254.
For questions regarding
information in the release, contact Laila
Assanie, (214) 922-5191. |
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