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Third Quarter 2008
Federal Reserve Bank of Dallas
The third quarter survey found continued apprehension about farming and ranching conditions in the Eleventh District agricultural community. A slightly higher share of bankers cited declining loan repayment rates, rising requests for loan renewals and extensions, and an increase in collateral levels compared with last quarter. Operating margins remained lackluster, and a few bankers expressed concern that high fuel, fertilizer and feed costs would affect producers’ credit risk.
On the production side, Hurricanes Ike and Gustav flooded parts of Coastal Texas and Northern Louisiana, causing widespread crop damage and livestock losses in the affected areas. Despite good late-summer and early-fall rains that boosted crop yields in some areas—especially in the Texas Plains—the dry spell lingered in Central Texas, hurting livestock and crop production.
Additional highlights from the survey:
- Farmland values rose at a slower pace and sales activity weakened. About 15 percent of bankers expected farmland values to decline in the third quarter, compared with 5 percent in the previous two. Additionally, 97 percent of respondents foresee flat or weaker demand for farm real estate loans, up from 87 percent in second quarter 2008.
- Overall loan demand was mixed during the quarter. Income from oil and gas leases on farmland reduced loan demand in mineral-rich regions, while crop and livestock damage resulting from the drought and hurricanes spurred lending activity in others.
- High fuel, fertilizer and feed costs have compelled farmers to limit purchases of farm equipment and ranchers to curtail herd expansion. More than 90 percent of responding bankers anticipate steady or lower demand for feeder cattle and farm machinery loans over the next three months.
- Agricultural Credit Conditions
at Survey Banks in the Eleventh District
- Rural Real Estate Values
11th District Agricultural Land Values
Third 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
Corn and other summer crops are looking good, as growing conditions are excellent.
Land costs are still rising, although at a slower pace than the previous 18 months. The corn harvest is starting with above-average yields. Wheat planting is delayed due to increased input costs and insect pressure. Cows are in excellent condition, with good calf weaning weights.
The corn and silage fall harvests have started. Preliminary yields are good, although they are slightly lower than in 2007. Farmers expect a decent year with good commodity prices. The outlook for stocker and feeder cattle continues to be bleak.
Grain prices are high. New dairies are coming into the Panhandle area.
The vast majority of landowners in this county have extensive oil and gas income, eliminating any need for borrowing.
Region 2—Southern High Plains
Recent rains have made dryland prospects look good. The cotton crop will be dependent on the fall harvest.
Region 3—Northern Low Plains
Irrigated crops are good. We received good rains recently, as much as 7 inches. But it will take time to know if dryland crops will react and have time to mature.
Region 5—Cross Timbers
Timely rains in August have greatly improved hay and pasture conditions. Asking prices for land are still high, and fewer sales are occurring. High feed, fertilizer and fuel costs are squeezing producers, especially dairies.
Region 6—North Central Texas
The area is in need of rainfall.
Region 7—East Texas
Land values have retained their asking price, but due to the negative real estate lending events, land is not moving as fast as in the past. Real estate values do not accurately reflect the value of agricultural property. The cost of production continues to rise, but commodity prices have been favorable—resulting in about the same margin of profit.
Region 8—Central Texas
Ag credits will be difficult this year.
The crops from west of Victoria to George West were well below normal, primarily due to the dry summer weather. With less carryover and crops being more expensive for 2009, credit risk for agricultural loans will have a much greater probability of increasing.
Even with two major hurricanes this summer, we still did not receive any rain. Portions of Lavaca, Gonzales and Fayette counties are extremely dry. Tanks are still dry, and grass is nonexistent in some areas. Feeding with hay is being done daily. Cattle prices remain good. The economic news will determine what happens in the next three months.
The dry spring and early summer resulted in below-average corn yields. Rice yields will result in profits, despite the
highest input costs in history.
Drought conditions persist in much of our ag territory. The cost of feed, fertilizer and fuel are all higher and putting tremendous pressure on the ag producer. There are not many left who are making a living solely from the farm.
Region 9—Coastal Texas
We are unable to obtain land values due to Hurricane Ike. Salt water covered most of the land. Renewals and extensions requests are coming in due to the storm.
Region 11—Trans-Pecos and Edwards Plateau
High fuel, feed and production costs are keeping pressure on ag producers in the western Hill Country. Fortunately, livestock prices have remained strong. Some areas received some rare July and August rainfall. Overall, however, 2008 does not look like a year to write home about. The real estate market has slowed somewhat, but prices have not fallen.
Recent rains have helped prospects for a good year, but continued rainfall is needed before increases in herd sizes can be implemented. Also, area ranchers are increasingly relying on hunting and oil and gas income to counter livestock industry losses resulting from drought, high fuel prices, predators and feed cost increases that are driven in part by the ethanol industry.
Region 13—Northern Louisiana
The recent rainfall from Gustav has flooded the area crops in many places. We received as much as 15 to 27 inches. The rice and corn that is still in the field probably will not be harvested and is considered a complete loss. Soybeans that were not mature and harvested may still be salvaged, but area elevators are selective in accepting damaged crops to fill contracts. Cotton that did not have open bolls may still be harvested, while older cotton may not be. Late soybeans and cotton may have an opportunity to be salvaged. At this point, time and weather will tell the rest of the story.
| 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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