US farmland prices are heading for a third successive year of decline, amid worries for farm finances stoked by the drop in prices of major crops to multi-year lows.
A farmland price index compiled by Creighton University, from data in agricultural states from Wyoming to Missouri, showed some improvement in the US farmland market this month, rising to 30.3 from a figure of 25.6 in August.
However, the reading remained “frail”, and well below the 50.0 level which indicates a neutral market.
Indeed, it represented a 34th successive month of sub-50.0 figures, with the data showing only Colorado among the states covered seeing a reading above that threshold, signalling a rise in prices.
The continued market decline comes amid growing pressure on farm finances prompted by crop price weakness, with Chicago corn futures hitting a seven-year low last month on a spot contract basis, and wheat futures their weakest in a decade.
The US Department of Agriculture has forecast US net farm income falling 11.5% this year to a seven-year low of $71.5bn, fuelled by a $25.7bn decline in cash receipts from commodity sales/
“The decline reflects falling commodity prices, an effect only partially offset by an increase in production,” the USDA said.
Creighton, whose data are drawn from a survey of lenders, reported that Illinois banker Jim Eckert, “expects lower agriculture commodity prices to cause all but the best capitalised producers to only break even, or lose money, for 2016”.
Across lenders surveyed overall, 37% reported a rise in agricultural loan defaults over the past year, while 79% flagged a “significant upturn” in restructuring of farmer borrowings in response to weak farm income.
“Downturns in farm income over the past three years are pushing bankers to change the terms of farm loans,” said Ernie Goss, the Creighton economics professor in charge of the report.
The US rural “economy continues to falter according to our surveys of bankers”.
The university also flagged concerns voiced by one unnamed bank chief executive of “substantial impacts” next year from the farm sector downturn, with worries that regulators “will not provide necessary ‘breathing room’ for banks to weather plummeting farm income”.
‘Significant and negative impact’
The sector’s woes are continuing to depress the US agricultural equipment market too, with a machinery sales index falling to 14.3 from 14.6 in August.
“Weakness in farm income and low agricultural commodity prices continue to restrain the sale of agriculture equipment across the region,” Professor Goss said.
“This is having a significant and negative impact on both farm equipment dealers and agricultural equipment manufacturers across the region.”
(Source – http://www.agrimoney.com/news/us-farmland-prices-set-course-for-third-year-of-decline–9939.html)