February 24, 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.’”


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