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Fourth Quarter 2006
Federal Reserve Bank of Dallas
Eleventh District agricultural
lenders report moderate improvement in conditions in
fourth quarter 2006. Although loan repayment and fund
availability increased slightly, indicating better liquidity,
some bankers expressed caution over the future cash
flow situation of dryland farmers in the district. On
the production side, while good rains in December helped
allay drought conditions in many regions, additional
moisture was needed in some others. Dryland crop production
was well below 2005 levels, and rising feed prices,
along with lower cattle prices, continued to hurt ranchers.
Some bankers anticipate that the high price of corn
resulting from increased demand for ethanol could lead
to credit problems for cow/calf operators and dairy
farmers next year. By contrast, farmers are optimistic
that higher grain and corn prices will yield better
farm income in 2007.
Here are additional details from
the survey:
- Bankers indicate that 1031 tax-deferred land exchanges
and renewed interest in recreational use and energy
sources such as natural gas and wind have continued
to push up the price of farmland. The price of dryland,
irrigated land and ranchland rose 2.5 percent, 2.4
percent and 3 percent, respectively, in the fourth
quarter.
- Lackluster crop yields, coupled with higher production
costs, have lowered farmers’ cash flow, contributing
to bankers’ expectations of an increase in loan
volume. Twenty percent of bankers anticipate making
more non-real estate farm loans during the next three
months, compared with 15 percent a year ago. In addition,
23 percent of bankers foresee greater demand for operating
loans, up from 19 percent in fourth quarter 2005.
- Lack of good-quality wheat pastures for grazing
and rising supplemental feed costs have lowered the
demand for feeder cattle loans. As a result, 26 percent
of respondents expect to make fewer feeder cattle
loans over the next three months, up from 21 percent
expressing a similar sentiment last quarter.
- Agricultural Credit Conditions
at Survey Banks in the Eleventh District [PDF]
- Rural Real Estate Values [PDF]
11th District Agricultural Land Values
Fourth Quarter
Comments
District bankers were asked for
any additional comments concerning agricultural land
values or credit conditions. These comments have been
edited.
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
The outcome for farming in
2007 looks more favorable than it did in 2006, based
on increased grain prices.
We need moisture as the dryland
wheat crop is beginning to struggle. Land cash rents
have increased due to higher commodity prices.
Overall, farm results for 2006
were much better than projected earlier in the year.
Cotton production was well above projected yields. 2007
prospects look promising because of significant increases
in grain prices, which are being driven to a large extent
by the use of corn to produce ethanol. Banks have already
started contracting the 2007 grain crop.
Region 2—Southern High
Plains
Drought conditions took out
90 percent of our dryland crops, which will impact loans
for 2007.
With the 2006 crop year over,
most of the irrigated farmers will pay out while the
dryland farmers are facing a carryover of their 2006
crop year debt. A disaster payment is needed for the
dryland farmers. Prospects for the 2007 crop year appear
better with the recent rains and snow.
Escalating corn prices are having
a negative impact on feeder cattle and dairy customers,
which could result in some credit issues for the year.
Region 3—Northern Low
Plains
We received good rains last
week, which should cause the wheat to react and provide
grazing for cattle.
Rangeland is being sold for recreational
purposes. It is then sometimes leased for grazing. No
ranchland is being sold to agricultural operators because
the prices are too high to raise cattle successfully.
Region 4—Southern Low
Plains
Dryland cotton production
was very poor. Most of our borrowers had to take crop
insurance.
Wind farm growth in our area has
increased land values greatly due to current growth
and speculation of future growth. This has limited the
availability of real estate for sale in this four-county
area. Some land owners are listing their land for sale
but retaining “wind rights.” This has limited
the availability of recreational as well as agricultural
production land. We are seeing increased values of smaller
farm-acreage sales for weekend farmers.
High fuel prices and dry weather
are affecting some operations.
The 2006 cotton harvest is winding
down. Last year’s crops produced 72,000 bales
on 52,000 acres; this year’s crop produced 15,000
bales on 52,000 acres. The dryland wheat crop needs
moisture.
Region 5—Cross Timbers
The drought has caused a
severe hay shortage. High-priced hay, now coupled with
skyrocketing grain prices, will put a great burden on
dairy and beef cattle producers.
The wheat crops need rain. Cattle
prices are lower, but they are still good. Stock ponds
are low.
The higher wheat prices have more
people looking to cut wheat rather than graze it out.
This has lowered our dollar volume on cattle loans.
We have had 100+ days with no
moisture. There is very limited wheat pasture, and stock
tanks are one-third or less capacity.
Region 6—North Central
Texas
Drought conditions continue
to linger; thus, winter grazing is less than normal.
It is very important that we see replenishing rains
prior to the March planting dates.
Hay prices have been high, but
the fall moisture has helped as the fall cuttings were
nearly as good as the spring’s. Gas and diesel
prices have been holding steady, and hopefully they
won’t rise much. The key is going to be rainfall;
how much and when it falls will tell us what the cow
market will do and what the hay situation will look
like.
1031 tax-deferred real estate
exchanges keep pushing land prices up. Land prices west
of Interstate 35 are so high that land on the east side
is more attractive. At least grain prices are up, but
we need more water. We need rain for stocker operations.
The price outlook for corn is positive. Farmers are
planning on [planting] more corn for 2007. Prices for
land continue to increase in Williamson and surrounding
counties due to development and new roads.
Drought conditions and declining
cattle prices have caused a number of the local producers
to not purchase or contract for gain calves this year.
Hay is in extremely short supply. Rising grain prices
are causing concern also in the cattle market. The futures
price on corn is the only bright spot on the horizon.
Several large tracts of land have sold recently to investors
for recreation and development.
Region 8—Central Texas
Hay is still in short supply;
most round bales are getting $70–$80 delivered
price. Several producers are considering selling out
after the first of the year if conditions don’t
improve. Pasture conditions are terrible; winter oats
and rye are suffering. Real estate sales are stable,
although the number of listings is decreasing.
Land values continue to
rise due to demand for recreational purposes. 1031 tax-deferred
land exchanges are becoming more common, which is helping
to fuel higher prices.
Region 9—Coastal Texas
Land values are increasing
from investors buying property for long-term gains,
rather than for agricultural purposes. Metropolitan
growth close to our area is the primary cause of the
jump in land values.
Region 11—Trans-Pecos
and Edwards Plateau
Most range real estate loans
are for 20 years with three- or five-year adjustable
rates. Few land sales are being made to ranchers; most
are to professionals from out of the area.
We need rain.
2006 was a devastating year for
the Edwards Plateau in terms of rainfall. Cattle, sheep
and goat prices trended down somewhat at year-end but
were still fairly good. Ranchland continues to be taken
out of production as real estate is being purchased
for recreational use.
Region 12—Southern New
Mexico
Fall moisture was very good.
Land prices have really started to go up due to ranchland
acquisition by nonagricultural buyers for speculation
and building subdivisions. Investors are continuing
to buy grassland in the area.
Region 13—Northern Louisiana
This past growing season
went from extremely dry to extremely wet. Up to 15 inches
of rainfall put some harvested cotton modules 1 to 3
feet under water. A good number of sweet potatoes began
to rot in the field, with harvesters unable to get the
crop out. This year, too much water at one time seemed
to cause more problems than too little water did earlier.
| 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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