What is in this article?:
• The survey for the report was conducted Sept. 11 through Sept. 30, 2013.
• The results are based on the responses from 47 agricultural banks within the boundaries of the Eighth Federal Reserve District.
Farm income across the District increased modestly from the same quarter one year ago. This increase is in line with previous reports, which have generally indicated healthy farm economic and financial conditions in the District.
“Going forward, survey respondents expect farm income levels in the fourth quarter of 2013 to remain modestly above their levels from a year earlier,” said the report.
In addition, the survey indicated that capital and household spending increased modestly in the third quarter relative to the same period one year ago.
“For the fourth quarter of 2013, bankers expect that household-spending levels will remain above their year-earlier levels (index value of 105). By contrast, bankers expect that capital expenditures by farmers will fall modestly short of levels seen in the fourth quarter of 2012 (index value of 95),” stated the report.
Cash rents for quality farmland across the District averaged $181 per acre in the third quarter, which was down slightly from the second quarter ($183 per acre). However, cash rents for ranchland or pastureland rose modestly in the third quarter ($62 per acre) compared with their second-quarter average ($57 per acre). According to the survey,
“Average cash rents have moved steadily upward since the second quarter of 2012 — though at an uneven pace. Bankers expect that cash rents for both quality farmland and ranch- or pastureland are expected to increase modestly over the next three months.”
Expectations for farm income, expenditures and several other key variables in the third quarter were exceeded, relative to expectations from three months earlier.
“In particular, expectations were exceeded for farm income, capital spending, availability of funds to extend loans and the rate of loan repayment,” stated the report.
In contrast, the demand for farm loans and household spending was a bit less than expected in the third quarter — though still modestly above year-earlier levels (index values of 105 and 116, respectively).
Expectations of loan-repayment rates in the third quarter of 2013 exceeded banker expectations from three months earlier (index value of 105).
As reported in the previous survey (2013:Q2), there was some anecdotal evidence that the method of determining cash rents may be changing. “In particular, there were reports that rents have become more variable over time, in part because of profit-sharing arrangements,” stated the report.
In an attempt to gauge the validity of this hypothesis, bankers were asked to assess the percentage of cash-rental agreements that were written as flexible or variable rental arrangements.
Respondents indicated that most rental arrangements in their respective areas did not have these flexible or variable features. For example, 75 percent of the respondents estimated that a third (30 percent) or less of the rental arrangements involved these special features.
The second question asked respondents to assess the main pricing features of flexible or variable cash-rental arrangements in their area. A little less than half (43 percent) indicated that rents were based on crop yield.
Roughly one-quarter (27 percent) were based on a base rent plus a bonus, with roughly one-fifth (22 percent) tied to a variable-rent arrangement based on gross revenue generated by the crop. Very few cash-rental agreements were tied to a commodity-pricing scheme.
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