The two-year decline in commodity prices has had a significant impact on farm income in the northern Plains this summer. According to an overwhelming survey by the Minneapolis Federal Reserve Bank, ag bankers have witnessed a decrease in farm income. This decline is expected to continue into the winter months. Farmers have responded by cutting back on major purchases, and there has been an increase in loan demand.

Unraveling the Effects of Commodity Price Decline on Farm Income

Impact on Purchasing and Loan Demand

Farmers have significantly reduced their capital spending. As stated by a South Dakota banker, "Most farmers are not purchasing or trading machinery at this time." This indicates a cautious approach by farmers in light of the economic conditions. Additionally, the increase in loan demand reflects the financial challenges faced by farmers in maintaining their operations.

Regional Fed banks in Chicago and Kansas City have also reported lower farm income in their districts. Nationwide, ag bankers have observed a 40% increase in the volume of new operating loans compared to the third quarter of 2023. This highlights the need for financial support to help farmers navigate through these difficult times.

Survey Results and Expectations

Nine out of every 10 bankers participating in the Minneapolis Fed survey reported lower farm income during July, August, and September compared to the same period in 2023. A significant 83% of bankers expect lower farm income in the final three months of this year. The Minneapolis Fed's district, which covers Minnesota, Montana, North Dakota, South Dakota, the northern third of Wisconsin, and the Upper Peninsula of Michigan, is particularly affected.

A Montana banker looking ahead noted that with high input costs and land rental rates, "2025 cash flows will be very tight and most likely net losses." This emphasizes the long-term challenges faced by farmers in the region.

Farmland Value Trends

Despite the decline in farm income, farmland values in the northern Plains have shown an upward trend, continuing a four-year pattern. Non-irrigated cropland values are 2% higher than a year earlier, irrigated cropland is up 3%, and ranchland and pastureland are up 1%.

In the central Plains, bankers reported a 5% increase in non-irrigated cropland values from the third quarter of 2023. However, in the Chicago Fed district, which includes Iowa and most of Illinois, Indiana, Wisconsin, and Michigan, farmland values remained unchanged. This is the first period since the fourth quarter of 2019 without a year-over-year increase in district farmland values.