“The southern portion of the Federal Reserve Bank of St. Louis' district (Little Rock and Memphis zones) reported a notable increase in income and spending” in the fourth quarter. “Income in the Memphis zone was higher than a year earlier because corn and soybean yields in the southern portion of the district were significantly higher than in the northern areas. Farmers in the south were thus able to profit from the rise in commodity prices stemming from last year’s drought.”
What everyone knew — that a lot of farmers in the Mid-South had an outstanding year in 2012 — is reflected in the fourth quarter report of the Eighth Federal Reserve District.
“The southern portion of the district (Little Rock and Memphis zones) reported a notable increase in income and spending” in the fourth quarter, according to the Federal Reserve Bank of St. Louis’ Agricultural Finance Monitor publication.
“Income in the Memphis zone in the fourth quarter was higher than a year earlier because corn and soybean yields in the southern portion of the district were significantly higher than in the northern areas. Farmers in the south were thus able to profit from the rise in commodity prices stemming from last year’s drought.”
In the Little Rock zone, 13 percent of bankers reported actual farm income in the fourth quarter was above expectations and in the Memphis zone 75 percent reported above expected farm income.
Contrary to expectations that the severe drought would significantly reduce income and capital spending in the Louisville and St. Louis zones, bankers in the aggregate “indicated no decrease in income and spending, and outcomes were a bit better than expected in all zones.
“Many bankers cited the effect of crop insurance in alleviating the expected negative impact of the drought.” The USDA estimates crop insurance claims will reach $21 billion nationwide for 2012, “more than any other year by far.”
Fourth quarter loan demand across the district was “a bit softer than initially expected,” except in the Memphis zone, where 50 percent of bankers reported “much stronger” demand than expected.
For the district as a whole, bankers expected a decrease in capital spending for first quarter 2013 compared to a year ago.
“Tax provisions allowing accelerated depreciation on qualifying farm asset purchases were set to expire at year-end 2012, which may have contributed to a lift in capital asset purchases by farmers and agricultural bank lending in the fourth quarter. Rising fertilizer and seed costs may have enticed some crop producers to pre-pay for 2013 inputs.”
District bankers continued to report an upward trend in land values and cash rents. Compared to the previous quarter, they reported that values of quality farm land, ranch land, and pasture land increases an average of 4 percent, and they expected land values and cash rents to continue to rise.
In the Little Rock zone, 63 percent of bankers reported an increase in farm land sales, 38 percent no change or a decrease; in the Memphis zone, 44 percent reported an increase, 56 percent no change or a decrease. In both zones, the predominant reason for purchase was for investment, followed by hunting/fishing leases. Most financed sales were through the Farm Credit System, with commercial banks a close second.
Except in the Louisville zone, bankers indicated an increase in loan demand, funds availability, and loan repayment rates in the fourth quarter, and there was “strong sentiment” toward greater loan demand and funds availability in first quarter 2013.