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Second Quarter 2006
Federal Reserve Bank of Dallas
The Second Quarter Survey indicates
that the ongoing drought has increased strain on the
Eleventh District agricultural community. An increased
number of bankers report lower incidence of loan repayment
and greater demand for loan renewals and extensions
compared with last year. On the production side, crops
such as cotton, corn and wheat are suffering from heat
and lack of moisture, and yields are significantly off
normal levels. Farmers in the Southern High Plains are
collecting insurance on their dryland cotton crop, and
producers in North Central Texas have made silage out
of their corn crop. Several ranchers have taken out
larger loans to keep up with higher supplemental feed
costs, while some have completely sold off their herds
due to lack of water and forage. Additionally, high
energy prices have added to production costs and are
further stressing an already strained production environment.
Here are additional details from
the survey:
- More bankers foresee making fewer farm real estate
loans over the next three months, largely due to farmland
being sold for nonagricultural purposes such as recreation,
investment and natural gas exploration. Twenty-three
percent of bankers expect the volume of farm real
estate loans to decrease, up from 8 percent a year
ago.
- Ten percent of bankers saw a decline in the rate
of loan repayment, compared with 2 percent a year
ago. Additionally, 11 percent of respondents state
that loan renewals or extensions are greater, up from
5 percent last year.
- Bankers expect poor pasture conditions and increased
cost of supplemental feeding to reduce demand for
feeder cattle loans in coming months. Thirty-five
percent of respondents foresee a decline in loan volume
over the next three months, compared with 15 percent
a year ago.
11th District Agricultural Land Values
Second 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
This year’s wheat harvest
was the smallest in years. The continued dry conditions
and high energy costs remain a concern. Ranchers are
limiting stocker cattle purchases or liquidating their
herds.
Extreme drought conditions exist.
The wheat crop is poor. Summer irrigated crops require
continual watering. Cattle feeders have lost money.
Irrigation of the corn crop appears
to be nonstop. Ranchers continue to liquidate their
herds as there is no grass.
Land values have recently become
elevated due to purchases for recreational purposes
(hunting). Recreational value is two to three times
the agricultural use value.
Region 2—Southern High
Plains
We need some slow soaking
rains, though it is almost too late for our dryland
cotton.
The cotton crop has been hard
to establish due to the extremely dry weather. Dryland
cotton crop prospects are bleak. Irrigated crops are
very expensive to establish, and yields will have to
be excellent for farmers to break even this year.
Dryland cotton production will
be a disaster, with little, if any, produced. The insurance
adjustment process is commencing.
Region 3—Northern Low
Plains
We would be in a dust bowl
like the 1930s if not for Conservation Reserve Program
grass and modern farming techniques.
High input costs have reduced
profit margins. Drought conditions are a concern.
We will have to have rain for
the dryland crops. Some farmers are unable to plant
due to dry conditions. Hail destroyed some crops.
We desperately need a good rain.
Extremely high operating expenses and low commodity
prices are a concern. On the brighter side, livestock
prices are still acceptable. Terrain that is suitable
for hunting is being leased.
Region 4—Southern Low
Plains
The very hot dry weather
is hurting crop prospects.
Fuel costs are killing our customers.
All inputs are up because of fuel.
Most of the cotton is up and growing
and waiting on rain. Ranchland continues to sell, and
prices are increasing.
Region 5—Cross Timbers
Due to the dry weather, the
wheat crop is very small. Hay will be scarce. Cattle
prices are still good.
As inflation worsens, land values
and interest rates will continue to rise.
Region 6—North Central
Texas
Although somewhat stable,
land values have continued to increase. Cow herds are
being culled or sold. Hay prices are extremely high
as the supply is 50 percent of last year’s. Crop
production will be 50 percent below normal.
Cattle prices have started to
break some due to rising interest rates, drought and
the continued rise in fuel prices. If we don’t
get some measurable rainfall in the next 30 days, conditions
will be worse than they were last year. The first hay
cutting wasn’t as good as expected.
Land values are increasing greatly
due to the forced sale for new highway systems.
Dry weather has decreased yields
up to 50 percent in some areas. We need lots of rain
to help the cotton crop and ranchers. Tanks are very
low, and pastures are burning up. Some ranchers are
reducing herds and taking advantage of good prices.
This will set some farm operations back; they can’t
stand any more losses. Real estate values continue to
increase due to growth in the county.
Ranchers began liquidating cattle
herds June 1. Land values are escalating due to speculation,
making it impossible for farmers and ranchers to buy
land. The cost per acre is over $5,500.
Natural gas leases in Hill and
McLennan counties have increased land values.
Late spring rains helped make
a fair wheat crop. Current drought conditions are adversely
affecting the corn and hay yields. Many farmers have
made silage out of their corn and will try to collect
on their crop insurance. Without substantial rainfall
fairly soon, hay will be in short supply and very expensive.
Region 7—East Texas
Crop yields are expected
to be less than in the past two years due to drought
conditions. This will affect the repayment ability of
customers. Land values could be adversely affected.
Requests for credit will also be adversely affected,
and more agricultural real estate will be diverted to
recreational use and for subdivision purposes. Cattle
prices continue to be strong and are expected to improve
the value of pasture land.
Due to the drought, there has
been an increase in operating loans and extensions.
Oil and gas lease activity is driving up land values.
Region 8—Central Texas
This drought looks to be
worse than 1996. We will run into big problems with
hay shortages in the fall. We are already ahead of 1996
cattle sales.
We are seeing a large sell-off
of young and mature cows. The local sale barn is overwhelmed.
It is very dry, resulting in no grass and very little
hay. Very few land sales are for agricultural purposes.
Cow/calf operators are selling
off middle-aged and old cows as well as very lightweight
calves. Some ranchers have sold out completely because
of no water.
Region 9—Coastal Texas
Recent rains along the Texas
Gulf Coast have improved crop and pasture conditions.
However, the current projected yields are about 50 percent
on crops that have survived thus far. Areas south and
west are still extremely dry, and these pastures will
not likely be restocked until next spring at the earliest.
It is difficult to find
large lots available for lease, due to heavy land sales.
Region 10—South Texas
Severe drought conditions
continue.
Region 11—Trans-Pecos
and Edwards Plateau
This is the first year in
more than 50 that not a single peanut will be planted
in Mason County.
The dry spell is making ranchers
borrow more from their operating notes to continue feeding
livestock. Ranchers will face liquidation of their cow
herds over the next month unless rains come. Operating
costs have jumped, lowering profitability. With cattle
ranchers facing high energy and labor costs, they are
hoping that foreign markets, such as Japan and Korea,
will be reopened for beef trade.
Dry conditions have caused some
ranchers to borrow for supplemental feed supplies. Livestock
prices remain strong despite the drought. Agricultural
land is being taken out of production by recreational
purchasers.
Dry conditions are affecting planting
of major crops and leading to reduced herds of all types.
Region 12—Southern New
Mexico
Extreme drought!
Drought and high energy costs
are a major concern.
| 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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