ST. LOUIS, Mo. — Fourth-quarter 2012 agricultural finance surveys from the Federal Reserve banks of St. Louis and Kansas City reported strong farm loan demand and rising farmland prices and rental rates in the Mid-South and Western Corn Belt.

The Fed reports of these trends were all colored by the 2012 drought. The St. Louis report, from the Eighth Federal Reserve District, underscored the lesser impacts of it in the Memphis region.

“Importantly, income in the Memphis zone in the fourth quarter was higher than a year earlier because corn and soybean yields in the southern portion of the district were significantly higher than in northern areas,” stated the report. “Farmers in the South were thus able to profit from the rise in commodity prices stemming from last year’s drought.”

Bankers in the Memphis region also reported a continued upward trend in land values and cash rents. In West Tennessee, observers said more heated cash rent bidding has occurred this winter in the area just east of the Fed’s Memphis region.

“As you push east (in Tennessee) and north across the Kentucky line, you’ll probably find $300 to $400 rents are pretty common,” said Andy Davis, University of Tennessee extension area specialist in farm management, based in Clarksville.

Chuck Danehower, a UT farm management specialist based in Ripley, said land rents in West Tennessee are also impacted by more irrigation installations on rented ground.

“(There are) many different variations and arrangements on how both parties in share and cash rent are getting into irrigation,” he said.

Landlords and tenants in his region have worked out various agreements for sharing the costs of new irrigation systems. “If irrigation is feasible for the farm, then it generally will benefit both parties.”

Bankers surveyed by the St. Louis Fed reported prices of quality farmland, ranchland or pastureland increased an average of 4 percent in 2012.

Land values and cash rents continue to rise, with value gains in cropland expected to outpace price hikes in pasture ground.

A lender from Illinois, quoted anonymously in the report, said, “The 2012 drought greatly reduced production, but all of our bank’s borrowers carried crop insurance, and many had higher levels of coverage. This has resulted in good income for most, and most will carry that income into 2013.”

While the report cautions the survey is a representative sampling from lenders in the Eighth District, agricultural loan demand in the Memphis zone was reported to be much stronger than the bankers expected in the previous quarter.

In contrast, bankers surveyed in the St. Louis, Little Rock and Louisville areas all reported softer demand for ag loans than expected.

Bankers in the Eighth District expected farm capital spending and loan demand to be less during the first quarter of 2013 than a year ago. The survey report speculated that accelerated depreciation provisions in the tax code, set to expire at the end of 2012, “may have contributed to a lift in capital asset purchases by farmers and agricultural bank lending in the fourth quarter.”

Prepayment of expenses, in anticipation of rising input costs, could also contribute to less loan demand during the first quarter of 2013.

Headquartered in St. Louis, the Eighth District covers all of Arkansas and portions of Missouri, Mississippi, Tennessee, Kentucky, Indiana and Illinois. A copy of the bank’s Agricultural Finance Monitor is available at www.stlouisfed.org

Further west, drought conditions are affecting farmland values and rents. A similar fourth-quarter report, from the Federal Reserve Bank of Kansas City, showed irrigated land prices increasing by 30 percent, as drought-stricken farmers in Nebraska, Kansas and the Rocky Mountain states sought to guard against future drought risk.

Ranchland values in the region have also increased, “as an ongoing lack of rainfall constrained the availability of quality pastures.”

In western Missouri, according to the report, crop insurance payments bolstered strong cash positions among the region’s larger producers. “Land sales and land prices have taken a big jump in our area in recent months,” said a banker in western Missouri.

Another banker, from northwestern Missouri, said, “Almost all recent auctions were sold to the farmers in the area wanting to get bigger. The buyers are strong and most are cash sales.”

According to the survey, irrigated and non-irrigated cropland values in the Tenth Federal Reserve District had year-over-year gains of more than 20 percent for the seventh consecutive quarter. The Tenth District includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri.

The Kansas City bank’s report is also available online, at www.kansascity fed.org/agcrsurv/agcrmain