Signals in the ag economy

According to the Kansas City Federal Reserve, trends in non-real estate lending activity at commercial banks have been driven by changes in the short term financing needs associated with agricultural production. The share of non-real estate loans for operating expenses gradually has drifted higher since the 1990s, but especially over the past five years. In the first two quarters of 2016, operating expenses accounted for 62 percent of total non-real estate loan volumes, according to the KC Feds survey of ag lenders.

Since the survey began in 1978, operating expenses as a share of the total have eclipsed 60 percent in the first half of the year just once (2009) before 2015, but have remained above 60 percent each of the past two years. The gradual increase over the past five years highlights the persistently weak cash flow that has driven demand for agricultural credit.

Meanwhile, the same conditions that have pushed operating higher have generally softened the ag economy, including land values. The value of nonirrigated, good-quality cropland declined modestly in almost all states in the western Corn Belt, which includes just the northwest of Missouri. However, major corn-producing states, including the rest of Missouri, Iowa, Illinois, Nebraska and Indiana, also posted modest declines in the first quarter of 2016.