Rents for prime U.S. cropland, farmer incomes projected to fall more

Cash rents for some of the most fertile farmland in the United States fell in the second quarter and are likely to decline again between July and September, according to a survey published on Thursday by the Federal Reserve Bank of St. Louis.

The quarterly report, which covers the northern delta and southern Midwest region, added that incomes for farmers continued to fall in the April to June period and further decreases are likely in the third quarter.

The rural economy has been hit by recent bumper harvests that have pushed grain prices to the lowest level in five years, and by a strong dollar that has hurt exports. As a result, farmers have cut back the amount they are willing to spend on their businesses.

'Our trade area is primarily cash grain, and the lower grain prices will have a negative impact on farm income, prompting producers to reduce spending for both business and household,” the report cited an Illinois lender as saying.

Cash rents fell 6.4 percent for quality farmland in the second quarter of 2015 - the largest drop since the survey started in the third quarter of 2012. A 'slight majority” of bankers expect them to decline again in the next three months, the report said.

Those results are in contrast to figures earlier this month from the U.S. Department of Agriculture (USDA) showing cash rents in the Corn Belt were steady to lower from a year earlier and had edged up on average across the country.

The USDA has predicted overall farm income will drop by a third this year to $73.6 billion, its lowest level since 2009.

'Bankers reported a continued drop in farm income compared with the same period a year earlier,” the St. Louis Fed report said. 'Looking ahead, a large percentage of bankers expect further declines in the third quarter.”

The survey did not give percentage changes for income but used an index that registered 31 for the second quarter and 35 for the current quarter, where values from 0 to 99 indicate expectations of decreasing values.

Although the value of quality farmland edged up 0.5 percent in the second quarter over a year ago, bankers expected values to fall in the three months to Sept. 30.

The survey of 39 banks in a region covering Arkansas and parts of six states including Illinois and Indiana was conducted from June 15 to June 30.