US farmland market stabilises, despite dips in farm incomes, credit conditions


A slew of survey data raised hopes of an end to the slump in US farmland prices, despite continued falls in farm incomes and deterioration in credit conditions.

A monthly survey by Creighton University revealed a US farmland price index of 46.3 for this month, below the 50 level which indicates a neutral market, but up by 4.1 points from January, and indeed “the highest reading since July 2014”.

Only Missouri and South Dakota showed deteriorating market conditions, of the 10 major agricultural states covered by the survey.

The data came hours after a series of briefings from the US central bank, the Federal Reserve, revealed at worst a slowdown in the rate of price declines in the October-to-December period, and in some areas a return to price increases.

The St Louis Fed, which covers a Midwest area stretching from southern Indiana and Illinois, through Missouri to Arkansas and Mississippi, said that year on year “quality farmland values rose 5% in the fourth quarter…. Meanwhile, ranchland and pastureland values increased by a healthy 14.8”.

‘Declines appear to have slowed’

In more northern parts of the Corn Belt, into Iowa and Wisconsin, prices rose 1% in 2017 – the first rise since 2013, and avoiding exceeding the three-year stretch of declines seen in the last major land price fallout, in the mid-1980s, the Chicago Fed said.

The Fed’s Kansas City bank reported continued year-on-year price falls in the October-to-December period, ranging from 2.4% from irrigated cropland to 3.6% for non-irrigated fields, but characterised this as a “stabilisation” after steeper declines previously.

“On average, values for all types of farmland declined only 3% from a year ago,” said the Kansas City Fed, whose area includes Colorado, Kansas, Nebraska and Oklahoma.

“Prior to the fourth quarter, farmland values had declined at an annual pace of 5-7%, but those declines appear to have slowed more recently.”

‘Sell land, or refinance’

The market improvement came despite acknowledgement of continued pressure on farm incomes from weak crop prices, and greater difficulty in accessing loans, with the Kansas City Fed flagging that “farm income declined in the fourth quarter and credit conditions remained relatively weak”.

The Chicago Fed flagged “further deterioration in agricultural credit conditions”, addng that the proportion of farm loan portfolios in its area “deemed to have ‘major’ or ‘severe’ repayment problems edged up to 6.1%”.

That represented “the highest such share since the early 2000s”.

It also reported one Iowa lender it surveyed reporting that “several area banks are putting pressure on producers with tight margins to either sell land, or refinance with another bank”.

Yield, livestock support

However, the Chicago Fed also reported that strong yields had helped to support the local market, providing some compensation for low crop prices, saying that “the productivity of… farmland helped stabilise the value of agricultural ground in 2017.

Furthermore, rising prices of some livestock commodities “helped prop up agricultural land values, most notably in Iowa, even though corn and soybean prices were weaker in 2017 than in the previous year”.

The Kansas City Fed, flagging resilient farmer purchases of land, noted comments from “several bankers… that producers seem to be adjusting slowly to lower commodity prices” through measures such as reduced farm and household spending.

Furthermore, “a limited number of farmland sales have contributed to the stability of farmland values”.

Price outlook

In fact, many bankers expect the number of farm sales to increase in 2018, a factor which could be viewed as a negative for prices.

However, all three banks – Chicago, Kansas City and St Louis – flagged expectations of lenders in their regions seeing “steady” or “stable” farmland markets for the early parts of this year.

“More of the same is likely for district agricultural land values in early 2018,” the Chicago Fed said.

A stable market would follow declines which, in the Chicago Fed’s region, have fallen 10% from their 2013 high after adjustment for inflation.

“Even so, the index of inflation-adjusted farmland values for the district was 58% higher in 2017 than at its previous peak in 1979.”


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