Nathan Kauffman Economist Federal Reserve Bank of Kansas City – Omaha Branch The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
“Cost of capital items (land) preclude young farmers from borrowing unless they can get FSA low rate financing.” “With land prices this high young farmers can't buy any land without support of someone who has financial strength.” “Nearly impossible to compete with existing established farmers. Without family, equipment, land and backing it is very difficult to be a ‘young, beginning’ farmer.” “Unless a young or beginning farmer is part of a family operation or has a fairy godmother the barriers are almost insurmountable even in this low interest rate environment.” Federal Reserve Bank of Kansas City – Omaha Branch www.kansascityfed.org/omaha Regional, Public, Community Affairs Division
Kansas City District • Survey of ~250 Commercial Nebraska, Kansas, Oklahoma, Bankers Wyoming, Colorado, Missouri, New Mexico • Farmland values, cash rents, farm incomes • Credit conditions: interest rates, collateral requirements, loan demand, funds availability, etc. Federal Reserve Bank of Kansas City – Omaha Branch www.kansascityfed.org/omaha Regional, Public, Community Affairs Division
Diffusion Index* 160 160 Loan Repayment Rate 140 140 Collateral Required 120 120 100 100 80 80 60 60 Period 1 Period 2 Period 3 40 40 Source: Agricultural Finance Databook *Commercial bankers responded by indicating whether conditions during a given quarter were higher than, lower than, or the same as in the year-earlier period. The index numbers are computed by subtracting the percentage of bankers who responded “lower” from the percentage who responded “higher” and adding 100. Federal Reserve Bank of Kansas City – Omaha Branch www.kansascityfed.org/omaha Regional, Public, Community Affairs Division
Percent change from the previous year 35 35 30 30 Irrigated Cropland 25 25 Nonirrigated Cropland 20 20 Ranchland 15 15 10 10 5 5 0 0 -5 -5 -10 -10 Period 1 Period 2 Period 3 -15 -15 Source: Federal Reserve Bank of Kansas City, Survey of Agricultural Credit Conditions Federal Reserve Bank of Kansas City – Omaha Branch www.kansascityfed.org/omaha Regional, Public, Community Affairs Division
Dollars per farm $1,600,000 120000 Farm Equity (Left Scale) $1,400,000 105000 Real Estate Debt (Right Scale) Non-real Estate Debt (Right Scale) $1,200,000 90000 $1,000,000 75000 $800,000 60000 $600,000 45000 $400,000 30000 $200,000 15000 $- 0 Under 35 35 to 44 45 to 54 55 to 64 Over 64 Source: USDA Agricultural Resource Management Survey, (2011 data) Federal Reserve Bank of Kansas City – Omaha Branch www.kansascityfed.org/omaha Regional, Public, Community Affairs Division
Billion Dollars (Constant 2012 Dollars) $140 140 USDA Projected $120 120 FAPRI $100 100 $80 80 $60 60 $40 40 $20 20 $- 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Source: USDA, FAPRI Federal Reserve Bank of Kansas City – Omaha Branch www.kansascityfed.org/omaha Regional, Public, Community Affairs Division
Percent, Annualized* 35 35 Corn Price Volatility* 30 30 Avg. Corn Price Volatility (1994 - 2006) 25 25 Avg. Corn Price Volatility (2006 - 2012) 20 20 15 15 10 10 5 5 0 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 * Calculated as 10-day historical volatility using standard deviation of daily corn prices, then annualized and expressed as a quarterly average. Federal Reserve Bank of Kansas City – Omaha Branch www.kansascityfed.org/omaha Regional, Public, Community Affairs Division
Diffusion Index* 140 140 130 130 120 120 110 110 100 100 90 90 80 80 70 70 60 60 Debt-to-Equity Loans Made Collateral Loan Farmland Ratio Required Repayment Purchased * Bankers responded by indicating whether conditions in the fourth quarter of 2012 are typically higher than, lower than, or the same for young and beginning farmers relative to other farmers. The index numbers are computed by subtracting the percentage of bankers who responded “lower” from the percentage who responded “higher” and adding 100. Federal Reserve Bank of Kansas City – Omaha Branch www.kansascityfed.org/omaha Regional, Public, Community Affairs Division
NY Fed Small Business Survey (Aug. 2012) 37% of loans were denied 13% approved for full amount Larger, more experienced firms were more successful in obtaining credit. Insufficient collateral the #2 reason for refusal (28%). National Small Business Association Survey (NSBA 2012) 25% denied based on collateral 31% rely on lending from friends and family Federal Reserve Bank of Kansas City – Omaha Branch www.kansascityfed.org/omaha Regional, Public, Community Affairs Division
Agriculture has high capital costs, constraining entry. Higher collateral is a rational response to greater risk. Questions Are risks being properly measured? Is the land ownership model tenable? What makes agriculture different? Federal Reserve Bank of Kansas City – Omaha Branch www.kansascityfed.org/omaha Regional, Public, Community Affairs Division
For More Information on The Midwestern Economy and Rural America www.kansascityfed.org/omaha
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