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Energy costs chipping away at Plains farm incomes

Agriculture.com Staff 08/15/2008 @ 9:01am

Despite record-high commodity prices, exploding energy costs have lowered farm income expectations moving ahead from the second quarter of '08.

That's according to new information from the Federal Reserve Bank of Kansas City. Add to that questions about this summer's late-planted corn and soybean crops and farm incomes could take an even greater hit in the coming months.

"In the second quarter, the Tenth District farm income index pulled back from record highs primarily due to the rising cost of energy-related crop inputs such as fertilizer, fuel and chemicals," says Jason Henderson, Federal Reserve executive at the Omaha Branch. "Some bankers were concerned that spring planting delays due to wet weather could adversely affect fall crop yields."

Input costs have also caused farmers to seek more financing, according to those bankers surveyed in the Fed's Tenth District, which comprises Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri. But, not just for current expenses; respondents say more farmers are prepaying for next year's input costs as they watch prices skyrocket for things like fertilizer.

"Many farmers are paying up-front for 2009 crop inputs, and some are facing repair costs for irrigation equipment that was damaged by severe storms," Henderson says. "The amount of funds available for loans declined with elevated loan demand. Increased expenses curbed capital spending plans."

The farm land market is yet another variable in the equation. In the Fed's Tenth District, surveyed bankers say land values "plateaued" in the second quarter of '08. They're still higher than a year ago, however, and looking ahead, ag lenders see the market improving, at least in parts of the Tenth District.

"Approximately a third of survey respondents anticipated cropland values could start appreciating again closer to fall harvest," Henderson says. "According to contacts in Oklahoma, Colorado and Wyoming, the booming energy industry is contributing to rising farmland values in natural gas- and oil-producing regions of the District."

A final factor indicating declining farm incomes is general farm credit conditions, which Henderson says "showed signs of deterioration" in the second quarter of '08. "The rate of loan repayments fell sharply from a record high in the first quarter and is expected to ease further. The number of loan renewals and extensions continued to trend up andpushed the index past 100, though some improvement is expected in the third quarter," he says.

Despite record-high commodity prices, exploding energy costs have lowered farm income expectations moving ahead from the second quarter of '08.

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