Tag Archives: district
UPDATE 2-U.S. Midwest Farmland Prices Soften In Q3-Chicago Fed
Thu Nov 14, 2013 By Christine Stebbins Nov 14 (Reuters) – Farmland prices in the heart of the U.S. Corn Belt softened in the third quarter from the prior three months and overall values in the top corn-producing state of Iowa eased, tracking grain prices lower, the Federal Reserve Bank of Chicago said on Thursday. For the district overall – which stretches across Iowa, northern Illinois and Indiana, as well as Wisconsin and Michigan – farmland prices were up 1 percent in the July-September quarter from the previous quarter and up 14 percent year-on-year, according to the Fed’s quarterly survey of farm bankers. “While district farmland values increased on the whole in the third quarter of 2013, this upward trend was not expected to continue: the respondents’ expectations leaned toward a decrease in farmland values in the fourth quarter of 2013, as only 4 percent anticipated an increase and 21 percent forecasted a decrease and 75 percent foresaw stable farmland values,” the Fed said. “That’s a change,” David Oppedahl, a Chicago Fed senior economist and author of the survey said. “Also there could be some credit conditions shift as we may have a larger volume of operating loans in the coming quarter than a year ago.” The Kansas City Federal Reserve will release its farmland survey on Friday U.S. central bank policymakers, farm bankers, sellers of seed and feed and equipment to farmers and the farmers themselves have been watching farmland auctions in the Midwest carefully this autumn to pick up any pronounced weakness in the market after the sharp decrease in grain prices from last year’s record highs. Farmland is the basic collateral for farmer loans and economists have expressed concern for months that a farmland “bubble” may pop as it did in the 1980s, hurting what has been one of the healthiest sectors of the U.S. economy. The Chicago Fed survey, which sorted responses from 195 district farm bankers, confirmed that as harvest got under way and the autumn auction season began, the prices for prime crop land were mostly steady from three months earlier. Illinois and Iowa, for instance, which produce about one-third of all U.S. corn and soybeans, saw prices gain 1 percent and fall 1 percent from the prior three months, the Fed data showed. “After leading the district in terms of year-over-year gains in farmland values from the first quarter of 2010 until earlier this year, Iowa felt the impact of renewed drought conditions and had the lowest year-over-year increase in agricultural land values among district states, as well as the only quarterly decrease,” the Fed said. A positive sign was that the farmland values held up so well in the third quarter despite the drop in grain prices. The Fed said corn prices averaged $6.13 per bushel in the third quarter – down 12 percent from the previous quarter and down 15 percent from a year ago. Soybeans averaged $14.23, down 3.8 percent from the previous quarter and off 7 percent from 2012. “Better-than-expected crop yields for the district may have contributed to the momentum of its rising farmland values; however, in areas affected by back-to-back droughts, the loss of revenue from declines in crop prices and yields may have constrained farmland value gains,” the Fed said. The bank noted that the U.S. Department of Agriculture predicts that the five district states’ harvest of corn will be 38 percent higher than the drought-reduced production of 2012. District soybean production was projected to rise 8.5 percent in 2013, boosting farmer revenues despite the lower prices. FARM BANK CONDITIONS IMPROVE The softening but steadiness of the red-hot farmland market carried over to farm bank credit conditions. “In the third quarter of 2013, the District’s agricultural credit conditions saw improvement relative to a year ago, although it was generally narrower than in the previous quarters of this year and the past few years,” the Fed said, adding that bankers expected agricultural credit conditions to shift in the fourth quarter. Bankers surveyed also expected loan repayment to worsen, with 17 percent forecasting the volume of farm loan repayments to rise in the next three to six months relative to a year ago and 26 percent expecting this volume to fall, the Fed said. However, significantly, “Forced sales or liquidations of farm assets among financially stressed farmers should decline in the next three to six months relative to a year earlier, except in Wisconsin,” the Fed said. That outlook for less liquidation was tied, ironically, to the fall in grain prices which, for the first time in years, was suddenly brightening business for livestock and dairy producers. Grain farmers have been cutting debt sharply in recent boom years. USDA currently estimates in prices for corn at $4.10 to $4.90 and for soy $11.15 to $13.15 for 2013/14 crop year. “Thirty-seven percent of the respondents expected higher net earnings for cattle and hog operations over the next three to six months relative to a year ago,” the Fed said. Prospects for dairy producers were not as rosy since milk prices in October were off 6 percent from October 2012. Continue reading
Brakes Being Applied To Rapid Rise In Farmland Values?
August 28, 2013 8:30 am • By Jane Fyksen Crops Editor Is the party coming to an end? That is the question raised by the Federal Reserve Bank of Chicago’s August farmland values and credit conditions report. Even though for second-quarter 2013, “good” farmland was up 17 percent from a year ago in the Seventh District, which includes three-fourths of Wisconsin, ag land values registered no gain in the second quarter relative to the first quarter this year, according to 211 ag bankers in the district. “The last time there was no quarterly increase in agricultural land values was in 2009,” says David Oppedahl, business economist with the Chicago Reserve. “Generally, the stellar year-over-year gains in farmland values across the five district states masked the comparative weakness of the quarterly results.” Further, Oppedahl reports that the percentage of ag bankers in this quarterly survey anticipating farmland values to fall during the present third quarter (July-September) is the same as those predicting land value to rise (both 7 percent). Eighty-six percent think farmland values will be stable in the third quarter. As noted, the Seventh District’s survey of ag bankers includes three-quarters of the state, generally all but the northwest section. From July 1, 2012, to July 1, 2013, they saw land values in Wisconsin up 7 percent, 6 percent in the more southeasterly counties, 11 percent in the more central portion of the state and 16 percent in the southwest, which is generally included with northeast Iowa in the survey; however, in the second quarter (April 1 to July 1, 2013), ag bankers say the value of “good” farmland in Wisconsin only rose 1 percent. That is based on a 6 percent rise across the state’s midsection, but a 3 percent drop in southeastern and eastern counties up along Lake Michigan. Southwestern counties, lumped in with northeast Iowa, saw a 2 percent second-quarter hike. Year-to-year changes and second-quarter 2013 changes, respectively, for other district states are as follows Illinois (the northern two-thirds), up 17 percent, down 1 percent; Indiana (up 21 percent, up 5 percent); Iowa, up 18 percent, unchanged in recent months; and Michigan, up 18 percent, down 7 percent. Oppedahl highlights the second-quarter pause in what is been a rapid rise in farmland values in recent years, and he points to the quarterly decreases in ag land values in Illinois and Michigan. While farmland values on a year-over-year basis “still appear to be soaring,” he notes that “changes in farmland values on a quarterly basis may be presaging shifts in the year-over-year pattern in the latter half of 2013.” The year-over-year increase in farmland values for the second quarter was larger than that for the previous one – 17 percent versus 15 percent reported in June. Ag bankers, like producers, are seeing key crop prices starting to slide, and wondering if land values With larger harvests anticipated this fall to bolster crop supplies, USDA estimates price intervals for the 2013-2014 crop-year of $4.50 to $5.30 a bushel for corn and $10.35 to $12.35 for soybeans. “Given these price ranges, the district’s 2013 corn and soybean harvests would be lower in value compared with its 2012 harvests,” notes Oppedahl. While some of the lost revenue will be recouped via crop insurance payments for prevented plantings and revenue protection policies, this Federal Reserve economist cautions that “the anticipation of lower crop revenues – especially combined with potentially rising interest rates on farm loans – portended softness in future farmland values.” As for credit conditions in the district, he reports they were generally better in the second quarter than a year earlier. Ag bankers had more funds for lending, and repayments rates for non-real-estate farm loans were higher than a year ago. Ninety-four percent of responding bankers said their ag loan portfolios were having no significant repayment problems during April, May and June, and they perceived non-real-estate loan demand for the period to be below what it was during the same three months last year. Interest rates on farm loans rose in the second quarter for the first time since early 2011. That followed record-low rates in the previous quarter. As of July 1, district averages for interest rates on new farm operating loans and real estate loans were 4.94 percent and 4.65 percent, respectively, both lower than a year ago. “The uptick in interest rates on farm loans may mark an important shift in the district’s agricultural credit conditions,” Oppedahl warns. “Demand for non-real-estate loans relative to a year ago fell during the second quarter of 2013, but not as sharply as it did during the first quarter,” says Oppedahl. “With 17 percent of survey respondents reporting higher demand for non-real-estate loans compared with a year ago, and 30 percent reporting lower, the index of loan demand was 97 for the second quarter of 2013 – higher than its reading of 67 for the first quarter. Moreover, in the first six months of 2013, the amount of farm operating loans generated by banks was lower-than-typical, whereas the amount of farm mortgages was higher than typical.” Given such low demand for non-real-estate farm loans, it’s “not surprising,” he notes, that the district’s average loan-to-deposit ratio remained quite low at 64.5 percent – “well below the ratio desired by responding bankers (77.2 percent).” Bankers anticipate operating loans and livestock loans to shrink in this third quarter, relative to July-September last year; however, falling crop prices should bring some relief to livestock producers, who have suffered in recent years with high feed prices, Oppedahl says. Continue reading
Farmland Values Continue Rising
Published: Friday, June 28, 2013 On the whole, “good” farmland values kept rising in the Seventh Federal Reserve District during the first quarter of 2013, but signs of moderation in farmland value gains emerged. Agricultural land values appreciated 4 percent in the first quarter of 2013 relative to the fourth quarter of 2012, based on the survey responses of 219 district agricultural bankers. This quarterly increase was smaller than that of the previous survey. That said, the year-over-year increase in agricultural land values was 15 percent in the first quarter of 2013, nearly matching the annual gain of 2012. Both the district’s quarterly and year-over-year increases in farmland values masked the weaker results of some areas, such as Wisconsin. Demand to purchase agricultural land increased in the three- to six-month period ending with March 2013 compared with the same period a year ago. Similarly, the number of farms sold, the amount of acreage sold, and the amount of farmland for sale rose during the winter and early spring of 2013 compared with a year ago. Additionally, farmland cash rental rates in the district were 11 percent higher in 2013 compared with 2012. With regard to agricultural land values during the second quarter of 2013, over three-quarters of the responding bankers expected them to be stable. Credit conditions continued to improve for agricultural producers. Both the index of availability of funds to lend and the index of repayment rates for non-real-estate farm loans moved up, although they did not reach their peaks. In addition, fewer renewals and extensions of these loans indicated improvement in credit conditions. Yet, the index of demand for non-real-estate loans in the first quarter of 2013 fell to its lowest level since 1986. At 63.7 percent, the average loan-to-deposit ratio had not been lower since 1994. Interest rates on farm loans moved down further to new lows for the survey. Farmland Values District agricultural land values rose 4 percent in the first quarter of 2013 relative to the fourth quarter of 2012, easing down from the quarterly increase of last year’s final quarter. However, the year-over-year increase in district farmland values was 15 percent in the first quarter of 2013, almost matching the annual gain of 2012. Furthermore, the district’s quarterly and year-over-year gains in agricultural land values masked the weaker results of some areas (see table). Most notable was a 3 percent drop in Wisconsin’s farmland values in the first quarter of 2013 from a year ago. That said, the year-over-year and quarterly gains in agricultural land values for Michigan were higher than the strong gains of the previous quarter. For Illinois and Iowa, the increases in farmland values on a year-over-year basis were close to those of the previous quarter, although these district states’ quarterly increases were softer than those of the last quarter. There was higher demand to purchase farmland in the three- to six-month period ending with March 2013 compared with the same period a year ago; 59 percent of the survey respondents observed higher demand to purchase farmland, while only 1 percent observed lower demand. The supply of farmland was higher too: There was an increase in the amount of farmland for sale over the winter and early spring relative to a year ago, as 37 percent of the responding bankers reported more farmland was up for sale in their areas and 28 percent reported less. Similarly, the number of farms and amounts of acreage sold increased over the winter and early spring relative to a year ago. A little over one-third of survey participants reported that farmers increased their share of farmland acres purchased (relative to investors) in the three- to six-month period ending in March 2013 versus the same period a year earlier; 3 percent said farmers decreased their share; and 62 percent saw no change. District cash rental rates for agricultural land in 2013 were up 11 percent from 2012 (this annual increase was smaller than those of the past two years). Over the same period, farmland cash rental rates were up 9 percent in Illinois, 11 percent in Indiana, 13 percent in Iowa, 2 percent in Michigan and 12 percent in Wisconsin. District cash rental rates increased almost 10 percent from 2012 when adjusted for inflation using the Personal Consumption Expenditures Price Index; this result was the fourth-largest increase in farmland cash rental rates in the history of the survey. The string of strong advances in farmland cash rental rates propelled their inflation-adjusted index past its previous peak. Similarly, the index of agricultural land values has established new records every year since 2011. Historically, changes in cash rental rates have tended to trail those in farmland values, so not surprisingly, the equity derived from the land outpaced the income from cash rents in 2013. Rising cash rental rates and farmland values reflected higher crop prices. Prices in the first quarter of 2013 averaged $7.06 per bushel for corn and $14.47 per bushel for soybeans, according to the U.S. Department of Agriculture. In the first quarter of 2013, corn prices and soybean prices increased 2.5 percent and 1.4 percent, respectively, from the fourth quarter of 2012; corn prices grew 13 percent and soybean prices grew 17 percent compared with a year ago, as tight stocks and uncertainty about the weather boosted prices. Moreover, at the end of the first quarter of 2013, $16.1 billion had been paid out for insured 2012 agricultural losses across the U.S., of which $6.66 billion went to producers in the five district states (41 percent of the U.S. total). These factors bolstered farmland values and cash rents while enhancing agricultural credit conditions in the first quarter of 2013. Credit Conditions Agricultural credit conditions improved in the first quarter of 2013 compared with the first quarter of 2012. At 161, the index of funds availability nearly matched last year’s record, with 61 percent of the survey respondents reporting their banks had more funds available to lend and under 1 percent reporting their banks had less. The index of repayment rates for non-real-estate farm loans moved up to 143 for the first quarter of 2013—its highest value since setting a new high a year ago; 47 percent of the responding bankers reported higher rates of repayment and 4 percent reported lower rates. Thirty-five percent of the survey respondents observed fewer loan renewals and extensions over the January through March period of 2013 compared with the same period last year, while 5 percent observed more of them. Continue reading
