Frost Advisory FROST ADVISORY - Buchanan County  - Clayton County  - Delaware County  - Dubuque County  - Fayette County  - Jones County  - Linn County
Agriculture

Ag Informer – Ag Economy Bubble to Burst?

High commodity prices are fueling a strong farm economy in the Midwest and Plains this summer, but agricultural lenders worry that higher prices for seeds, fertilizer, fuel and other inputs will put the brakes on farm income in the near term. “Lenders reported growing concerns about 2023,” said the Kansas City Federal Reserve Bank, one of four regional Feds to survey bankers every three months about farm finances.

“The agricultural sector is strong at the moment,” said David Oppedahl, senior business economist at the Chicago Federal Reserve Bank. “Farmers in the Midwest continue to see profits in the current growing season.” So far, input costs are not rising as rapidly as income, he said, but they “could put a strain on farm balance sheets in the future.”

In the southern Plains, drought was straining agricultural production, particularly for cotton, and overwhelming the effects of high commodity prices and crop insurance. “Grassland is stressing for cattle and herds will be down,” one lender told the Dallas Federal Reserve.

The farm economy “remained solid in the second quarter, but survey contacts reported signs of slower growth that appeared likely to continue in the coming months,” said the Kansas City Fed. A larger share of lenders reported significant increases in production expenses and several bankers said livestock feed costs were up because drought had withered pastures and hay fields. “High inputs will cause real problems when grain prices start to drop,” said a banker in western Oklahoma.

Farmland prices rose despite concerns about higher input costs, market volatility due to the war in Ukraine, rising interest rates and drought. They were 22% higher on July 1 than a year earlier in the Chicago Federal Reserve district; around 20% higher in Kansas City Federal Reserve and Minneapolis Federal Reserve districts; and at least 10% higher in Texas, the dominant state in Dallas Federal Reserve district.

“At least three-quarters of survey respondents in Illinois, Indiana, and Iowa were of the view that farmland was overvalued—in contrast with respondents in Michigan and Wisconsin, where at least half were of the view that farmland was appropriately valued,” said the Chicago Fed’s AgLetter. But seven of every 10 bankers in the survey said they expected land values to be stable during the third quarter, while 25% expected increases.

ADVERTISEMENT

Back to top button
Mix 94.7 KMCH