US farmland prices are extending a decline which goes back to 2013, but dropping at a slower rate – however, there is no sign yet of recovery in sales in the farm equipment industry from “anaemic” levels.
A farmland price index compiled by Creighton University came in at a reading of 35.5 for this month, remaining below the 50.0 level which indicates a neutral market.
“This is the 22nd straight month the index has moved below growth neutral,” said Ernie Goss, the Creighton economics professor in charge of the index, which is drawn from a survey of lenders in major agricultural states from Wyoming to Illinois.
“On an annualised basis, farmland prices are declining by 6-7%.”
Still, the index reading was above the 32.7 recorded for August, and represented a third successive month of recovery from a June low of 31.1.
‘Bankers remain pessimistic’
However, the Creighton survey showed sentiment over the farm equipment industry remaining deeply depressed, with a sector index reading unchanged at an “anaemic” 14.2.
“The 2014 and 2015 downturns in farm income continue to reduce sales and production of agriculture equipment dealers and producers across the region,” Professor Goss said.
“Bankers remain pessimistic about the short and intermediate prospects for agriculture equipment dealers and producers.”
‘Ongoing industry headwinds’
The data follow results last week from Titan Machinery, a major US dealer in Case and New Holland machinery, showing a drop of 35% to $334.2m in the May-to-July period.
David Meyer, the Titan chairman and chief executive, said that: “Our agriculture segment continues to be impacted by ongoing industry headwinds,” which have prompted the group to start a $20m cost cutting plan, including job cuts and site closures.
Meanwhile, latest data from the Association of Equipment Manufacturers on US agricultural machinery sales show a 44% slump, year on year, in overall US sales in the first eight months of 2015 of four wheel drive tractors used mainly by cropping farmers, who are having a particularly hard time thanks to low grain prices.
Combine sales are down 39%.
However, the decision on Thursday by the US Federal Reserve to keep US interest rates on hold may offer some hope for farm spending on big-ticket items, in keeping borrowing costs at historically low levels.
In fact, there are mounting expectations that a rate rise may not be implemented this year at all, with four members of the Fed’s Open Market Committee pushing back to 2016 the time when they foresee an increase.
Futures markets, which were ahead of the Fed decision estimating at 44% the chance of a rate rise next month, are now putting the probability at just 18%, according to Bloomberg.
For December, the chances of a rate rise have fallen to 44%, from 64%, with a lower chance of a rise in borrowing costs implying less support for the dollar.
(Source – http://www.agrimoney.com/news/us-farmland-prices-falling-at-a-pace-of-6-7percent–8784.html)