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Farm economy softens further, but shows signs of stabilizing

OMAHA, Neb. — A prolonged downturn in the agricultural economy continued in the second quarter of 2017, but recent data from the Kansas City Fed’s Survey of Agricultural Credit Conditions suggest conditions in the farm sector may be stabilizing.

Agricultural credit conditions weakened further in the second quarter, but the pace of deterioration has slowed. Although the rate at which farm loans are being repaid continued to decrease, the change from a year ago was not as sharp as in recent years. Only 37 percent of bankers in the Tenth District reported a decrease in repayment rates from a year ago, the lowest share since mid-2015.

Similar to credit conditions, income in the farm sector continued to weaken but not as rapidly as in recent years. Bankers in most Tenth District states expected the decline in farm income to be slower in 2017 than in 2016. Despite some signs of stabilization in the District farm economy, prolonged weakness has continued to dampen business activity on Main Street in rural areas. In fact, in line with a year ago, 85 percent of bankers reported that the weakening farm economy has led to weaker business activity

Farmland values continued to trend lower alongside the reductions in farm income and weaker credit conditions, but the changes have remained modest. For the sixth consecutive quarter, the value of cropland and ranchland in the District decreased from a year ago. Similar to recent quarters, the value of irrigated cropland, nonirrigated cropland and ranchland decreased 7 percent, 5 percent and 4 percent, respectively.

With the fall harvest approaching, agricultural lenders and borrowers remain concerned about prospects for the farm economy in the Federal Reserve’s Tenth District, particularly in regions with limited potential for high crop yields. However, bankers were generally less pessimistic about economic conditions in the farm sector in the second quarter than in each of the past two years.

Read the complete Survey of Agricultural Credit Conditions at https://www.kansascityfed.org/research/indicatorsdata/agcreditsurvey.

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