Lenders are downbeat on farmland prices in major US agricultural states despite some signs of the retreat in values losing steam, as high yields cushion farmers somewhat from the pain of low prices.
Cropland values in the central Plains wheat production heartland, including Kansas, Oklahoma and Nebraska, in the July-to September quarter slowed their decline to stand largely unchanged year on year, data from the Federal Reserve’s Kansas City bank showed.
And in a key Corn Belt region encompassing the likes of Illinois, Indiana and Iowa, the top corn-producing state, farmland values were “overall unchanged” year on year, according to the Fed’s Chicago bank
“Year-over-year increases in ‘good’ agricultural land values for Michigan and Wisconsin were offset by decreases in such values for Illinois and Iowa,” the Chicago Fed said, adding that “Indiana’s farmland values were the same as a year ago”.
‘Forced sales or liquidations’
However, bankers expect the downswing in prices which kicked in some two years ago to resume, with the Chicago Fed reporting that in its region lost lenders surveyed forecast a drop in values in the current, October-to-December quarter.
The Fed saw the survey, which also showed just 1% of lenders forecasting an increase in prices over the quarter as “hinting that the absence of a decline in the [July-to-September] quarter was merely a pause in a longer-term correction”.
“Additionally, respondents forecasted weaker demand to acquire farmland this fall and winter compared with a year ago.”
The gloom reflects the dent to profitability for both arable and livestock farmers from weakened prices of crops, cattle and hogs.
Indeed, “forced sales or liquidations of farm assets among financially distressed farmers were anticipated to increase in the next three to six months relative to a year earlier”.
Across the board
The Kansas City Fed said that its survey showed that bankers “expected non-irrigated cropland, irrigated cropland and ranchland values to decrease in the next [October-to-December] quarter.
“These expectations mark the first time in six years that bankers expected values in each category of farmland to fall in the months ahead.”
The Kansas City Fed too highlighted a deterioration in sector prosperity from weaker agricultural commodity prices, with farm income down “sharply” over the July-to-September period, and credit conditions worsening.
“Following increased demand for renewals and extensions, and weaker repayment rates, many bankers expected the downturn to put more pressure on [banks’] agricultural loan portfolios in the months ahead.”
In the Kansas City region, which extends from Kansas state into New Mexico, ranchland values actually increased during the latest quarter, by 7.6%, led by the boost to Oklahoma prices from the return of rains which, in reviving pastures, have boosted the viability of cattle production.
Producers have been able to rely more on pasture for feeding animals, rather than bought-in fodder.
In the Chicago Fed district, prices rose 4% quarter on quarter in Illinois, and 2% in Wisconsin, but these gains were offset by losses elsewhere, including in Iowa.
(Source – http://www.agrimoney.com/news/us-farmland-prices-stabilise—but-further-declines-ahead–8998.html)