Farm income, household spending, and capital expenditures all decreased significantly over the second quarter according to the Minneapolis Fed’s quarterly Agricultural Credit Conditions Survey. Loan demands increased slightly as did collateral requirements. Many indicators stabilized during the quarter, including cash rents and land values. Average cash rent prices were up or down:

• Nonirrigated farmland: -1%
• Irrigated farmland: -3%
• Ranchland: +1%

Of the survey respondents, 41% reported lower farm income. The outlook for livestock is not very promising. The livestock sector was in bad shape last year and it is getting even worse. According to a Wisconsin lender, "The price of milk remains well below the cost of production and is putting stress on most operations." 86% of respondents from Wisconsin reported decreased farm income, while 40% of all respondents expect decreased farm income in the third quarter.

Land Values

Farmland values did not change much during the second quarter in the Minneapolis Fed's district. On average, nonirrigated farmland decreased in value by 2%, irrigated farmland values were unchanged, and ranchland values dropped by 2%. Some areas experienced more loss than others.

Outlook

Almost every sector is feeling the effects of the sluggish economy and this certainly includes agriculture. Survey respondents are expecting loan demands to increase along with collateral requirements and loan renewals. Compared to the Kansas City Fed's report from last week, the Minneapolis Fed is reporting worse conditions. Credit is tightening in these northern states while it was reportedly loosening according to the Kansas City Fed report.

The economic recovery is not going to happen overnight, it is going to take some time. It is a good sign that land values are roughly stable and that many indicators are now stabilizing. Steady conditions could present an opportunistic time to invest in agriculture.

- Colvin