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MinnEcon Blog
Mark Steil

Fed survey says farm boom continues

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The Minneapolis Fed's third-quarter agricultural credit conditions survey found that farm income increased for the fifth consecutive quarter. The survey of bankers indicates most lenders remain optimistic about the final three months of 2011, even though harvests were reduced in many areas by a wet spring and early frost.

Here are some highlights from the report:

Farm income, household spending and capital investment

One number here really stands out. The Fed says about 95 percent of the bankers surveyed said farm spending was steady or growing. No sign of an economic soft spot in agriculture. In Minnesota, two thirds of the lenders in the survey said farm income increased in the third quarter, the highest ratio of any state.

Loan repayments and renewals

The steady flow of farm profits shows up in the loan area, with strong repayment of borrowed money. Only 3 percent of the bankers surveyed in Minnesota, North Dakota, Montana, South Dakota and Wisconsin saw a decrease in loan repayments.

Demand for loans, required collateral and interest rates

The demand for loans in the district was similar to the demand in the second quarter, with 55 percent or more of the responding lenders reporting no change, and 32 percent reporting decreased loan demand.

Cash rents and land values

The district's average cash rents and land values for nonirrigated, irrigated and ranchland all increased from the previous year. South Dakota saw the biggest increases in nonirrigated land values, at nearly 30 percent. Minnesota was next at 28 percent. Cash rents for land are also spiking, up by one quarter over a year ago.

Outlook

Expectations for the fourth quarter of 2011 are strong. A banker in Minnesota summed it up: "We expect large cash deposits... [and] debt repayment should be higher than expected with the additional cash; we expect less borrowing and additional capital purchases." Nearly 54 percent of lenders responding to the survey predict that farm income will increase in the fourth quarter.

The findings are based on a survey of bankers in the Minneapolis Fed's region, including Minnesota Wisconsin, North and South Dakota, and Montana, but not the Upper Peninsula of Michigan.