The outlook for the agricultural economy is turning more pessimistic, according to a recent report from the Kansas City Federal Reserve.

“Agricultural credit conditions in the Kansas City Fed’s 10th District deteriorated at a slightly faster pace at the onset of developments related to COVID-19,” writes Nathan Kauffman, vice president and Omaha branch executive, and Ty Kreitman, assistant economist, for the Federal Reserve Bank of Kansas City. 

Ag lenders in the district, which includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri, reported a larger decline in farm income and loan repayment rates than in recent quarters. 

Here are the key indicators and highlights from the first quarter of 2020: 

1. Farmland values have remained relatively steady. Compared to a year ago:
   • Non-irrigated farmland increased 1.4%.
   • Irrigated farmland decreased 0.5%.
   • Ranchland increased 2.7%. 
      
2. Farm income in the 10th District weakened alongside a steep drop in agricultural commodity prices that began in March. The pace of decline in income was noticeably faster in the first quarter than in the previous quarter amid intensifying concerns related to COVID-19.
    
3. After improving slightly at the end of 2019, the share of bankers reporting lower farm income increased sharply in the first quarter. About 60% of respondents report farm income was lower than the same time a year ago, the highest share since early 2017. 
    
4. Only 15% of responding banks reported overall financial conditions for farm households were stronger than non-farm households. The relative weakness of farm households was felt more strongly in Kansas, Oklahoma and the Mountain States and less so in Missouri. 
    
5. After showing some signs of stabilizing, credit conditions deteriorated more quickly in the first quarter. Farm loan repayments declined at a faster rate than recent quarters. The pace of increase in loan renewals or extensions, as well as collateral requirements, also ticked up from the last survey period. In addition, these credit conditions were expected to turn more negative in the second quarter as banks assessed the likely economic difficulties surrounding COVID-19.
    
6. Revenues remained subdued for many producers in 2019, and the share of borrowers with an increase in carryover debt was similar to the prior two years. 
    
7. About 15% of all originated or renewed farm loans throughout the region involved restructuring to meet short-term funding needs, comparable with the past two years. 
    
8. Less than 5% of all farm loan requests throughout the region were denied due to cash flow shortages, the lowest since 2016. 
    
9. Nearly 90% of banks indicated trade relief payments provided at least moderate support to farm income and loan repayment. 

See the full report: Agriculture in the Tenth District Feels Initial Effects of Pandemic

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