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First Quarter 2006
Federal Reserve Bank of Dallas
The First Quarter Survey revealed
that the ongoing dry spell spurred challenges for agricultural
producers in the Eleventh District. The drought sparked
wildfires that scorched hundreds of thousands of acres
of pastureland and wiped out thousands of livestock
in the Texas Panhandle. Poor pasture conditions and
short hay supplies fueled supplemental feeding costs,
compelling some cattle producers to cull their livestock.
Farmers in several regions prepped
land for spring crops; however, additional rain was
needed before planting could take place. Additionally,
low crop prices and high fuel-related input costs further
strained the production environment. On the plus side,
cash receipts from the 2005 bumper cotton harvest allowed
producers to pay down their debt, improving their creditworthiness.
Recent rains helped overall moisture conditions somewhat
in the Northern Low Plains, North Central Texas and
East Texas regions, and cattle prices remained favorable.
Here are additional details from
the survey:
- Farmland values increased in most regions, although
at a slower pace compared with last quarter. Bankers
commented that values are being pushed up by demand
for land for nonagricultural purposes, such as natural
gas exploration, recreation and investment.
- Bankers foresee making fewer farm real estate loans
over the next three months, partly due to less land
being sold for agricultural use. Seventeen percent
of respondents anticipate a decline in the volume
of farm real estate loans, up from 10 percent of respondents
last year.
- Twenty-one percent of respondents anticipate making
fewer operating loans in the next three months, compared
with 11 percent a year ago. Some bankers link this
expected decline to drought conditions that are discouraging
farmers from planting and to high cash receipts from
the record cotton harvest that have helped farmers
pay off their debts.
- Agricultural Credit Conditions
at Survey Banks in the Eleventh District [PDF]
- Rural Real Estate Values [PDF]
11th District Agricultural Land Values
First Quarter Comments
District bankers were asked for
any additional comments concerning agricultural land
values or credit conditions. These comments have been
edited.
Region 1—Northern High
Plains
High energy and input costs,
as well as the lack of moisture, continue to be a concern
for farm producers in 2006. It appears that cattle prices
are in the beginning of a downward price slope that
is causing stocker and feedyard cattle equities to evaporate.
Recent wildfires eliminated grazing
for the cattle that were saved. Cattle prices have dropped
slightly. Although it cannot be determined at this time,
a slight adverse impact is expected for the local economy
in the short term. However, the unfortunate fire disaster
may create some demand.
A new cheese factory is projected
to open in Dalhart in fall 2007. This will increase
the need for dairies in our immediate area.
Recent range fires have devastated
a portion of the eastern Texas Panhandle. While livestock
losses are estimated to be less than first predicted,
the destruction in the affected areas has been catastrophic.
The overall economic impact of the fires has not yet
been calculated. Mid-March snow and rain have been welcomed,
but it may be too little too late for the winter wheat
crop. Irrigated-crop producers continue to be less than
optimistic for 2006 due to high electricity and natural
gas prices.
Region 2—Southern High
Plains
It has been very dry; we
have not had good precipitation for 151 days.
Loan demand is down because of
the excellent cotton crop for 2005, and ag customer
deposits are up substantially. Cotton ginning is just
now being completed for the 2005 crop.
South Plains cotton producers
had a successful season in 2005. As a result, their
creditworthiness has improved. Most will have more cash
equity in their operation in 2006, which will help mitigate
their credit risk in an operating environment characterized
by rising input costs. We need rain badly!
Region 3—Northern Low
Plains
The cotton crop was one of
the best this area has had. Our area received about
3 inches of rain, which is the first beneficial moisture
we have received in almost six months. Farmers will
be able to plow and prepare their land, but additional
moisture will be needed before planting.
Overall, we are unstable. We have
received some rain and farmers are able to begin soil
preparation. Cattle prices remain good for the producers.
Land prices continue to escalate.
Region 4—Southern Low
Plains
The last two consecutive
years have been good for cattle and cotton. Dryland
cotton will need timely rains, as there is no underground
moisture this season.
Very little real estate is being
purchased for agricultural purposes.
Ranchland values are increasing monthly. Farmland sales
are the highest in 33 years. Buyers are mainly from
out of the county.
Region 5—Cross Timbers
We may end up with a decent
year, only because of cattle prices. Wheat prices are
very low in relation to the cost of farming—fertilizer
and diesel.
Having received only 1.5 inches
of rain in the past 150 days, wheat pasture is almost
nonexistent and stock tanks are getting very low.
Region 6—North Central
Texas
The mild winter has helped,
and we have had nearly 7 inches of rain in six weeks.
I look for cattle prices to further skyrocket if we
continue to have these rains this spring. The hay season
should be much better than last year.
Highway right-of-way purchases
have created Section 1031 tax-deferred exchanges, driving
land prices up.
Southern Hill County land values
could increase due to natural gas exploration.
Rain is desperately needed, both
for soil moisture and runoff for ponds and lakes. Increased
production costs and stagnant commodity prices at harvest
time paint a very bleak picture for our producers.
Region 7—East Texas
Cattle prices have been strong,
and recent rains have lifted local ranchers’ spirits.
Region 8—Central Texas
We have not had rain for
255 days.
We are experiencing continued
drought conditions. The small rains we’ve had
have not produced any run-off water for ponds. Farmers
are just now planting, or they will not plant at all.
Hay prices continue to climb, if you can even find hay.
Real estate buyers are becoming more selective in what
they want.
We are extremely dry in Central
Texas. Hay is scarce, and what is coming into the area
is expensive. If it does not rain soon, ranchers will
spend their entire calf crop income on feed, unless
they sell out first. Dryland farmers are waiting on
a rain to plant.
We had only one bona fide ag real
estate transaction; the others were for investment purposes.
The cattle market is still good, and pastures are improving.
However, stock water needs replenishing. Loan repayments
are good.
Three of our rice farmers will
quit farming because of losses in the past two years.
Region 9—Coastal Texas
The coastal region has received
spotty rain showers. Soil moisture conditions are fair
to poor, with better moisture in the northeastern part
of the region. Many farmers have stopped planting until
significant rainfall is received. Cull cows and calves
are being sold earlier due to dry weather. High input
costs and lack of soil moisture will likely make this
a tough year for all producers.
Region 11—Trans-Pecos
and Edwards Plateau
Land values, which soared
for the past five years, have leveled off for the time
being. One animal unit is costing around $12,600, making
it virtually impossible for livestock producers to pay
for land with just the production off the livestock.
Land values do not reflect agricultural
values.
Region 12—Southern New
Mexico
It is very, very dry. Ranchers
are trying to hold on to their current cattle inventory.
It is critical that we receive moisture by midsummer.
The fire danger is high. More ranchland is being purchased
for subdivision.
We are experiencing severe drought
conditions in eastern New Mexico.
Region 13—Northern Louisiana
The new-year crop lending
cycle is in full processes
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| Quarterly
Survey of Agricultural Credit Conditions
is compiled from a survey of Eleventh
District agricultural bankers. This
publication is prepared by the Federal
Reserve Bank of Dallas and is available
without charge by writing to the Research
Department, Federal Reserve Bank of
Dallas, P.O. Box 655906, Dallas, TX
75265-5906, or by telephoning (214)
922-5254.
For questions
regarding information in the release,
contact Laila Assanie, (214) 922-5191.
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