A quarterly survey of agricultural credit conditions across a three-state region (Texas, Louisiana and New Mexico) by the Dallas Federal Reserve Bank indicates agricultural property values continued to rise for irrigated and non-irrigated land in the first quarter of 2012, some bankers calling the results a positive indication of a strong ag economy in spite of last year’s devastating and far-reaching drought.
Bankers responding to the first-quarter survey noted recent rains improved drought conditions across the region but said more moisture is needed as many areas are still very dry. Respondents’ comments also indicated that cattle prices were highly elevated and input costs for farmers and ranchers have increased, negatively affecting producers’ margins.
The survey was compiled from reports from Eleventh District agricultural bankers. Data were collected Mar. 6 through 14 with 138 bankers responding to the survey. The survey provides a footprint of economic conditions related to agriculture by looking into a number of relevant figures, including demand for agriculture loans, availability of funds, farm lending trends, land values, loan renewals and extensions, interest rates, cash rents and total agricultural loans.
Overall, the demand for agricultural loans increased in the first quarter compared to the 4th quarter of 2011, and availability of loans declined slightly.
Agricultural land values generally rose across the board from the prior quarter. Compared with a year ago, irrigated land values rose substantially, up almost 9 percent. Dry cropland and ranchland values were nearly unchanged from last year’s levels. Bankers in the Central Texas region said land sales for agricultural purposes remained limited due to oil and gas activity in the Eagle Ford Shale area.
The effects of the drought continued to affect lending conditions, indicated by loan demand continuing to decline. Requests for loan renewals or extensions fell, and loan repayment rates increased from a year ago. Loan volumes generally declined across types, with only operating loan volumes holding steady. Feeder cattle loans saw the steepest decline in volumes, as many herds were reduced in recent months in response to drought, increased feed costs and strong cattle prices.
Other significant figures include the decline in the amount of collateral required for agriculture loans, and a slight decline in interest rates from last quarter. Land banks reported the average interest in the 1st quarter of 2012 was unchanged for feeder cattle, and down slightly for general farm operations and long term farm real estate.
Concerning real estate values, the survey indicates the strongest market in Texas include the High Plains and Coastal Texas. In the Plains, dryland values increased by as much as 10 percent and Coastal Texas dryland values increased by a remarkable 32.7 percent. For irrigated acres, Southern Plains values rose nearly 11 percent, 12 percent in East Texas, 33.5 percent in Coastal Texas, 6.7 percent in Louisiana and 11.1 percent in southern New Mexico.
Ranchland values increased the most in the High Plains at nearly 35 percent and declined in Coastal Texas by 20 percent. East Texas ranchland values were up by 9.4 percent and Northern Louisiana ranchland values up by 2.6 percent.
Bankers in the Southern High Plains say farm income increases there did not come from crop sales, but from insurance proceeds and from dividends. Loan demand remained weak in the area. Bankers say dry weather will cause loan volumes for operating loans to fund much more slowly.
In Central Texas, land sales for agriculture purposes are mostly nonexistent due to Eagle Ford Shale drilling and exploration in the area. Bankers say land with minerals is leasing at unbelievable amounts. Because mineral leases are extreme, land values are greater than agricultural or recreational use could return in investment.
In Southern New Mexico, strong commodity prices have eased the effects of the drought, but supply going forward is contingent upon more favorable moisture conditions.