KANSAS CITY, Mo. — Reduced working capital for farm businesses across the Corn Belt, especially west of the Mississippi, will lead to more belt-tightening and greater demand for non-real estate loans from farm businesses this winter, according to bankers surveyed by the Federal Reserve Banks of Kansas City and Chicago.

Bankers indicated deteriorating farm financial situations. “According to survey respondents, both crop and livestock operations were expected to struggle in terms of net cash earnings this fall and winter,” said David Oppedahl, at the Chicago Fed.

Its survey covers banks in northern Indiana and northern Illinois, most of Michigan and Wisconsin and all of Iowa. Surveyed bankers said land values in that region maintained during the third quarter, according to the bankers surveyed.

“Overall district farmland values did not decrease on either a year-over-year or quarterly basis, demonstrating a remarkable resilience,” said Oppedahl.

According to the Fed, Indiana farmland values remained steady, as compared to this summer. Illinois and Iowa both saw declines in values, though not as great a decline as earlier this year. Michigan farmland values increased slightly. Bankers expect weaker farmland values this winter in the Chicago Fed region.

Farm financial conditions are relatively weaker in the West, according to the Kansas City Fed, which surveys bankers in Kansas, Nebraska, Oklahoma, western Missouri and portions of Colorado, Wyoming and New Mexico. Drops in the value of farmland were reported by the bankers surveyed in all those states.

Working capital for crop farmers is a main concern in the West. In the third quarter, 81 percent of those surveyed by the Kansas City Fed reported significant or modest deterioration in working capital. That is a jump from the 65 percent that reported weakness in working capital in the third quarter of 2014.

Demand for non-real-estate farm loans is also increasing. Low interest rates and solid credit conditions at farm banks, in both the Kansas City and Chicago regions, are allowing bankers to rework farm loans and extend credit this fall, if necessary.

Bankers in the West indicated there may be comparatively fewer funds available this year than last.

No farm crisis

Higher demand for farm borrowing, weaker farm balance sheets due to land price stagnation and less cash on hand are to be expected, in light of lower farm incomes.

This condition is not like the 1980s, according to a new report from Farmer Mac. “Even with the recent growth in farm financing, the industry is far from the conditions in the 1980s,” wrote Curt Covington and Jackson Takach.

A main factor for the difference between now and the 1980s is the extent that farmland values impact a farm’s ability to repay borrowed funds. “Large farmland price decreases would reduce net worth, but would not necessarily lead to solvency issues,” said Gary Schnitkey, University of Illinois.

“The larger threat for most farms is dealing with reducing costs so that costs do not exceed expected revenues.”

With lower returns from crop and livestock farming, Midwest farmers may need to look at reducing the amount of money they have become accustomed to bringing home, according to the Kansas City Fed’s survey.

Farms in its district are seeing a slowdown in capital spending, such as in replacing machinery and equipment. Sixty-five percent of the bankers surveyed said they are observing capital spending slowdowns.

But only 35 percent of those same bankers saw declining household spending. Farm household spending increased in the years running up to 2013, as operators enjoyed high profits from outlier crop prices.

Farms in the West may need some belt-tightening on household spending, to put some of those funds to work for the farm. “A majority of surveyed bankers expected farm incomes to continue to fall, but some also noted that further reductions in household spending may be needed to maintain adequate working capital and cash flow,” stated the Kansas City Fed report.