Agricultural producers are facing lower income and tighter credit conditions according to the Minneapolis Fed's third-quarter agricultural credit conditions survey. 58% of the respondents reported that third-quarter agricultural income declined due primarily to high input costs and low selling prices. Lenders noted that "the dairy and hog economy is having a significant negative impact" and "farmers are worried about crop conditions at harvest time."

Farmland and Rents

The survey showed that irrigated farmland prices were up 5%, although nonirrigated prices declined 6% and ranchland prices declined by 7%. Cash rents for irrigated land declined roughly 1%, nonirrigated declined about 3%, and ranchland was down 4%.

Credit

Demand for loans was relatively stable as 23% of respondents reported an increase in demand while 26% reported a decline. Lenders commented they continue to tighten loan conditions as 24% increased the amount of collateral required. Interest rates were constant over the quarter.

Outlook

Lenders are concerned about the fourth quarter as 58% responded that farm income would be down. The survey expects livestock and dairy to continue to struggle in 2009-2010. One lender noted that "2010 will be a break-even year at best."

On the positive side, lenders noted that this year could be a record harvest if weather conditions improve, but the "increase in yields will not offset the significant decrease in prices that has taken place."

Personally we discount the results of the Minneapolis survey as historically respondents have been overly bearish over the last 15 years. The decline in nonirrigated land prices is not consistent with what we have observed in the third quarter, especially in Minnesota and South Dakota.

- Colvin