January 25, 2020

Farmland Values, Federal Reserve Banks of Chicago and St. Louis, Updates

On Thursday, the Federal Reserve Bank of Chicago released its AgLetter report, which stated that, “The Seventh Federal Reserve District had an annual decrease of 3 percent in ‘good’ farmland values for 2014, marking the first yearly decline since 1986. However, farmland values in the fourth quarter of 2014 remained largely the same as in the third quarter, according to survey respondents from 224 agricultural banks across the District.”

The report explained that, “Moreover, the fourth quarter of 2014 was the first time since the third quarter of 2009 that the District suffered a year-over-year drop in farmland values. When adjusted for inflation, the District’s annual decrease in agricultural land values for 2014 was the first one since 1992; the streak of annual increases in District farmland values in real terms had reached 21 years before being broken in 2014. Still, at the end of 2014 the index of inflation-adjusted agricultural land values for the District was 68 percent higher than at its 1979 peak from the 1970s boom.”

The Chicago Fed noted that, “Lower corn and soybean prices have been primary factors contributing to the drop in farmland values. The impact of falling crop prices has been offset to some extent by buoyant returns for livestock producers through- out 2014. Nevertheless, the index of prices for livestock and associated products was down 5.2 percent in December from November (yet it was still up 13 percent from the previous December). The average price of milk in December was noticeably lower than the price in November, and even trailed the price from the previous December by 7 percent. As livestock producers responded to price signals for expansion, the extra output contributed to a lowering of the prices received by producers, trimming their profits. There still seemed to be some lift to farmland values from livestock operations toward the end of 2014, yet the farm sector should be cautious about possible future impacts of these price trends, especially because feed costs may not get much (if any) lower.”

Also Thursday, in its Agricultural Finance Monitor, the Federal Reserve Bank of St. Louis stated that, “According to the survey responses from 39 agricultural banks in the Eighth District, farm income, farm household spending, and capital equipment expenditures all declined in the fourth quarter relative to the same period a year earlier.”

The report pointed out that, “The average quality farmland values reported by common respondents in the fourth quarter indicate that quality farmland values were little changed from one year ago (+0.8 percent). However, a majority of bankers expect quality farmland prices to soften in the first quarter of 2015 compared with prices a year earlier. Respondents indicate that, for the quarter, their funds available for lending increased ahead of expectations while loan demand increased but fell somewhat short of expectations.”

With respect to key variable in crop farm operation profitability, the report explained that, “Cash rents for quality farmland increased on average 3.6 percent from one year ago. However, proportionately more bankers see downward pressure on farmland cash rents over the next three months (an index value of 77). As with the trend in pastureland values, respondents reported a decline in pastureland cash rents: 2.1 percent lower than one year ago. Similarly, bankers are equally divided on the future direction of cash rents over the next quarter. Since cash rents adjust to land values—perhaps with a lag— expectations for cash rents for quality farmland and ranchland or pastureland over the next three months are generally very similar to land values.”

Jesse Neman reported on Thursday at The Wall Street Journal Online that, “The [federal reserve] reports spotlight an overall slowdown in the U.S. farm economy and in the appreciation of farmland prices. Crop prices had soared for much of the past decade, fueled by drought and rising demand for corn from ethanol processors and foreign importers. The gains pushed agricultural land values so high that some analysts warned of a bubble.

“On Tuesday, the U.S. Department of Agriculture projected net U.S. farm income this year would fall to $73.6 billion, the lowest since 2009, from $108 billion in 2014.

Prices for corn, the biggest U.S. crop by value, have tumbled more than 50% since the summer of 2012, when they soared to record highs amid a severe U.S. drought. Growers produced the nation’s largest corn and soybeans harvests ever last autumn, helped by nearly flawless weather over much of the growing season.”

Reuters writer Christine Stebbins reported on Thursday that, “‘It is very difficult for farmers to buy farmland and new equipment with corn prices in the $3.50 range,’ one Missouri lender told the bank [St. Louis Fed]. ‘Many received much less for their crops this fall. Farmers with a lot of debt cannot postpone the sale of their crop waiting for prices to rebound when they have payments due after harvest.’”


Policy Issues; Ag Economy; Budget (CFTC); and, Regulations- Thursday

Policy Issues

Yesterday, the House Agriculture Committee heard testimony from Secretary of Agriculture Tom Vilsack at a hearing to review the state of the rural economy.

During his opening remarks, Committee Chairman Mike Conaway (R., Tex.) noted that, “Saturday marked the one-year anniversary of the signing of the Agricultural Act of 2014. As you know, economic conditions for many producers have changed dramatically since then, with commodity markets plunging by up to 50 percent. Drought and other natural disasters also resulted in disaster declarations in 33 states across the country last year. The net effect was an estimated 43 percent decline in net farm income over the past 2 years.”

Chairman Conaway indicated that, “I must admit that I was disappointed to see the administration’s FY2016 budget proposal that slashes $16 billion from crop insurance—a reduction of over 17%. With commodity markets plummeting and producers struggling to find financing, now is precisely the wrong time to weaken crop insurance.”

At the opening of the discussion portion of yesterday’s hearing, Chairman Conaway sought more detail on crop insurance issues from Sec. Vilsack– a transcript of this five minute conversation is available here, at


Highlights, USDA Agricultural Projections to 2024

On Wednesday, the U.S. Department of Agriculture released a report titled, “USDA Agricultural Projections to 2024.”

At page 53, the report stated that, “Planted area for major field crops in the United States is projected to decline over the next several years as U.S. and global supplies rebound from relatively low levels in recent years and prices decline for most crops. As a consequence of the associated lower producer returns, U.S. planted acreage for eight major crops (corn, sorghum, barley, oats, wheat, rice, upland cotton, and soybeans) is projected to fall from a 2012-14 average of about 257 million acres to about 246 million in 2017.”

Yesterday’s report noted that, “Larger global production of grains and oilseeds in response to high prices in recent years has raised world supplies and lowered U.S. prices for corn, wheat, and soybeans. Following these near-term price declines, the continuing influence of several long-term factors—including global growth in population and per capita income, a relatively low-valued U.S. dollar, and global biofuel production—underlies moderate gains in these prices and keeps them above pre-2007 levels.”

At page 76, the report stated that, “The livestock sector is projected to adjust to lower feed costs, with stronger producer returns providing incentives for increasing production. Additionally, the pork sector rebounds from reduced production in 2014 that largely reflected effects of Porcine Epidemic Diarrhea virus (PEDv). Production expansions for pork and broilers are projected for the full projection period. Beef production increases begin in 2018 as near-term declines in output are exacerbated as more heifers are retained to build beef cow inventories rather than fed for slaughter. As a result, total U.S. red meat and poultry production is projected to rise over the projections period. Milk production also increases over the next decade.”

With respect to farm income, USDA indicated that, “Net farm income reached a record high in 2013, largely reflecting a runup in prices for many agricultural commodities. While net farm income is projected to fall from that record, it remains above the average of the 2001-10 decade.”

And at page 86, the report stated that, “Direct Government payments to farmers rise sharply in 2016, mostly due to ARC and PLC payments under the Agricultural Act of 2014. After falling through 2019, direct Government payments average almost $10 billion per year over 2020-24, compared to an annual average of over $15 billion in 2001-10. The Conservation Reserve Program (CRP), ARC, and PLC are the largest Government payments to the agricultural sector over the projection period.”

Nutrition Issues Highlighted at House Ag Committee Hearing

Categories: Farm Bill

At a House Ag Committee hearing on Wednesday, lawmakers and Secretary of Agriculture Tom Vilsack highlighted nutrition related issues.

Committee Chairman Mike Conaway (R., Tex.) had the following exchange with Sec. Vilsack on Dietary Guidelines:

Rep. Conaway: Dietary Guidelines Advisory Committee is rumored to be wanting to eliminate red meat from our diets as a part of those guidelines. I guess, you know, coming from cattle country, I’m a little fired up about that. That whole panel I hope is focused on nutrition science in terms of developing those guidelines. Can you talk to us a little bit about—in fact do you have all the authority—it’s a joint responsibility with HHS. Do you have all the authorities you need to insist that it’s nutrition science that drives that train?

Sec. Vilsack: Yes, and I think the operative word of your question was “rumored.” That’s just not the case.

Rep. Conaway: Well, whether it’s reducing size of portions, all those kind of things—

Sec. Vilsack: No. I…as it relates to… Well, first of all, these are recommendations which the Department of Health & Human Services and the Department of Agriculture are free to accept, reject, or modify based on, ultimately, the decision-making that we are responsible for. Secondly, these folks get together, they do literature review of the latest science. It’s supposed to be driven by science and it needs to be driven by science. There is a lot of issues that have to be resolved yet. This is by no means finalized.

Rep. Conaway: Okay.

Sec. Vilsack: And then last, but not least, I would be surprised if the recommendations relative to meat are fundamentally different than they were in previous [guidelines].

Rep. Conaway: Can you give me a sense of what the timeline is and the steps between here and that final recommendation and report, whatever it is that goes on?

Sec. Vilsack: Sure. I think that we will be getting the guidelines—the recommendations, rather—very soon, within a matter of weeks, if not days. Then our team basically begins the process of working collaboratively with HHS to—and they’re the lead agency in this go round. I would anticipate and expect by the fall to early winter we’d have whatever the recommendations are going to—the new guidelines are going to be.

Rep. Conaway: All right. Well, again, you know, we’ve mentioned the science-based decision-making process, and nutrition science ought to drive the train and not sustainability or environment things, other things like that. It ought to be nutrition-based science, so appreciate that.

And Rep. Rodney Davis (R., Il.) brought up issues associated with school nutrition with Sec. Vilsack:

Rep. Davis: The issue that I always talk to you about, school nutrition. I wanted to thank you for putting out the guidance, the guidance memo for the exemption that our schools can apply for if they show hardship for the whole grain requirement. And also I want to thank you for implementing the freeze in current sodium levels until science can further back up target levels which will benefit the health of…which would be shown to benefit the health of children. In your view, how are the schools going to be able to benefit from these provisions, and do you support efforts to continue providing this flexibility?

Sec. Vilsack: Well, throughout this process we’ve indicated a willingness to be flexible as circumstances dictated. I think we’re very excited about the opportunities that we’re pursuing with our Team Up For Success initiative, which is designed to mentor and pair up school districts that are having a difficult time dealing with the new requirements, for whatever reason, with school districts that are similarly situated—similar size, similar geographic location. There was a day and a half seminar that was done down at Mississippi, University of Mississippi. We sort of piloted this notion. It was very well received. And so we want to see if we can continue doing that.

We obviously want to continue the smarter lunchroom grants and the school equipment grants, and the other financial resources that we’re making available. So it is a combination of a variety of things, and I think that’s why we’re seeing general acceptance, notwithstanding some of the concerns that have been expressed by school districts and by students. A recent survey showed 70% of elementary students and 63% of high school students were okay with what’s going on. So, you know, when I was governor I would have died for a 63 or 70% approval rating, and I suspect members of Congress would, too.

Rep. Davis: I wouldn’t die, but I would be very excited for that approval rating.

And in his prepared remarks, Sec. Vilsack noted that, “SNAP helps millions of hardworking families put healthy food on the table as they get back on their feet. More than half of SNAP recipients are children and the elderly, and less than 7% of households receive cash assistance. Among SNAP households with at least one working-age, non-disabled adult, more than half work – and more than 80 percent work in the year before or after receiving SNAP. With a stronger economy SNAP participation is beginning to gradually decline. Comparing Fiscal Year 2014 with Fiscal Year 2013, average participation decreased 2.3 percent or by approximately 1.1 million people. While the economic trends are encouraging, SNAP remains critical to millions of Americans.”

Sec. Vilsack indicated that, “The Farm Bill provided $200 million for SNAP employment and training pilots to help participants find jobs and increase their earnings…[and]…The new Farm Bill builds on USDA’s ongoing efforts to root out any waste, fraud, and abuse from the program, protect the taxpayer investment in SNAP and make sure that the program is there for those who truly need it. In FY2013, SNAP achieved a record level of payment accuracy of 96.8 percent. Payment errors in FY2013 were almost 64 percent lower than they were in FY 2000, among the lowest in the federal government. USDA efforts have also resulted in a significant reduction in trafficking – USDA’s The Extent of Trafficking in the Supplemental Nutrition Assistance Program: 2009-2011 study shows that the exchange of SNAP benefits for cash – which was estimated to be as high as 4 percent 15 years ago, down to just 1.3 percent according to the most recent data.”