Bankers turn positive on land prices in US cotton, cattle heartland


Bankers have turned positive on farmland prices in the US cattle and cotton heartland for the first time in two years, in the latest of a series of signals that, at least, the worst may be over the sector's decline.

The proportion of lenders in the southern states of Texas, Louisiana and New Mexico expecting land price rises exceeded those foreseeing falls in values for the first time since the April-to-June quarter of 2015, according to a survey by the Federal Reserve, the US central bank.

"After seven consecutive negative quarters, the anticipated trend in the farmland values index turned positive" in the quarter which ended on Friday, the Federal Reserve said.

"Respondents expect farmland values to trend up in the upcoming months."

And the extent of optimism is the highest in nearly three years, with the gap between bullish lenders over bearish ones, at 7.0 percentage points, the highest since autumn 2014.

Actual values

In fact, lender sentiment in the region has somewhat lagged the movement in actual values, with prices of irrigated land and ranchland putting in a second successive period of quarter-on-quarter recovery in the April-to-June period, albeit of a modest 0.4% and 0.9% respectively.

Dryland values rose by 2.6%, but after a decline totalling 5.2% over the previous two quarters.

And there have been other signs of the US farmland market at least slowing its decline.

A monthly survey by Creighton University of values in major ag states, including the likes of Illinois, Indiana and Kansas, came in with an index figure of 40.0 for June.

'Improving farm commodity prices'

While still below the 50.0 level which indicates a neutral market, the Creighton survey reading was the highest but one in nearly three years.

Ernis Goss, the economics professor in charge of the survey, flagged the role of "stabilising and slightly improving farm commodity prices" in boosting the rural US economy.

"Though grain prices remain below breakeven for most farmers, recent improvements in cattle and hog price" have boosted activity.

Although bankers surveyed by the university forecast, on average, a 3.1% drop in US farmland prices over the next 12 months, that represented a "significant improvement" from a previous survey, when a drop of 7% was expected.

In another potential sign of improvement in the farm economy, the Federal Reserve survey showed that "the rate of loan repayment stabilised, after declining for two years".

Cotton down, wheat up

Texas, at the centre of the Federal Reserve survey, is the top US beef producing state, and the biggest grower of cotton too.

The Fed survey, undertaken in the second week of June, came ahead of a retreat in cotton prices and in the early days of a pullback in feeder cattle futures too.

Still, it also preceded a jump in values of winter wheat, of which the state is also a major grower, and which have soared some 18% since the survey data for the Kansas City-traded hard red winter wheat produced by the state.

Indeed, the fed noted wheat prices at, or below, breakeven levels in many parts of the state for wheat producers – who are likely looking at healthy gains at current market levels.


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