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UPDATE: Farmland Values In Midwest, Plains Rise in Second Quarter -Fed Banks
(Adds quote from Fed economist in the eighth paragraph, other details throughout.) August 15, 2013, WSJ By Mark Peters The farm economy showed signs of slowing in parts of the U.S. during the second quarter, even as agricultural-land values continued to climb, according to new Federal Reserve reports. Regional bankers in a quarterly survey by the Kansas City Federal Reserve Bank said farm incomes fell in the second quarter and declines are expected in the third quarter, too, amid sharp declines in the prices of crops such as corn and soybeans from record highs a year ago. Some farmers also are struggling with lingering drought in Kansas and Nebraska. A separate survey by the St. Louis Federal Reserve Bank found bankers expect a pullback in farm incomes in the third quarter after a modest increase in the second quarter. Farmland prices, which have risen rapidly in recent years amid historically high crop prices, continued to increase in the latest three-month period. But some signs of the market cooling are appearing. The Kansas City Fed reported that non-irrigated cropland values rose 1.8% over the prior quarter on a non-seasonally adjusted basis, showing a further slowing of gains. Still, land values were up 18% from a year ago for non-irrigated land and 25% for irrigated cropland. The St. Louis Fed, meanwhile, saw farmland prices rise 11% in the second quarter to $5,672 an acre, and bankers expect additional gains in the third quarter relative to last year. That followed a 2.3% decline in the first quarter in the region, which includes parts of the Midwest and Southeast. In the Kansas City survey, an increasing number of bankers in the region, which stretches from Missouri to Colorado, said they think farmland values have peaked. But a majority of those expecting declines see a drop of less than 10% over the next year. They also see a limited correlation currently between farmland prices and farm incomes, with low interest rates, overall wealth in the farm sector, and limited alterative investment opportunities playing a larger role. Farm incomes have climbed to levels not seen since the early 1970s when adjusted for inflation, so a lag is likely to occur between falling incomes and their effect on farmland prices. “It may take some time before low incomes translate into relatively lower wealth that would represent a drag on land-value gains,” said Nathan Kauffman, an economist with the Kansas City Fed. U.S. cropland values have surged in the past four years, with federal data released earlier this month showing a nearly 80% gain in the Midwest and a 125% jump in the Great Plains over that period. Driving the rise in land prices and incomes has been historically high corn and soybean prices, but expectations for a record corn crop and a near-record soybean crop this autumn have caused prices to plummet this year. U.S. corn futures are trading more than 40% below the record settlement price of $8.3125 a bushel last August. Bankers in the Kansas City survey reported a pickup in operating loan demand in the face of rising input costs, but loans for farm machinery and other equipment may fall. Mr. Kauffman said debt levels on average aren’t raising concerns, but groups such as young farmers and those who expanded rapidly during the recent boom have considerably higher leverage. Write to Mark Peters at mark.peters@wsj.com Continue reading
Survey: Farmland Values Continued To Rise In Second Quarter 2013
Farmland values continued to rise during the second quarter of 2013, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. August 15, 2013 Farmland values continued to rise during the second quarter of 2013, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. Farm income, as well as capital and household spending, also increased slightly compared with a year ago. The survey for the report was conducted from June 11 through June 28, 2013. The results were based on the responses of 48 agricultural banks located within the boundaries of the Eighth Federal Reserve District. The Eighth District comprises all or parts of the following seven Midwest and Mid-South States: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. Farmland Values On average, Eighth District quality farmland and ranch or pastureland prices were higher than first-quarter 2013 and second-quarter 2012 levels. In addition, many lenders reported that they expected prices for quality farmland and ranch or pastureland to increase in the third quarter relative to the third quarter 2012. Quality farmland prices averaged $5,672 per acre in the second quarter of 2013, up 11% from an average $5,111 in the first quarter of 2013 and up more than 20% from $4,705 per acre in the second quarter of 2012. Ranch and pastureland prices were also slightly higher in the second quarter of 2013, with District lenders reporting average prices of $2,372 per acre, up about 4% from $2,274 per acre in the first quarter 2013 and up close to 1% from $2,349 per acre the previous year. Looking ahead to the third quarter, lenders reported that they expect land values to rise relative to last year. “A proportionately larger number of respondents expect quality farmland and ranch or pastureland values to increase in the third quarter relative to a year earlier,” the report said. Using variables based on diffusion index methodology, the average expectations index for quality farmland in the third quarter of 2013 was 127, while for ranch and pastureland prices, the index value was 108. (With diffusion index methodology based on survey responses, 101-200 indicates overall expectations of higher values, while 0-99 indicates expectations of decreasing values. A value of 100 indicates expectations remain the same.) Farm Income Average farm income and spending rose slightly in the second quarter of 2013 compared with a year ago. “On net, respondents indicated that second-quarter District farm income, along with capital and household spending, increased modestly relative to their respective levels one year ago,” the report said. Based on diffusion index methodology, survey results showed an actual income index level of 108 for the second quarter of 2013 across the District. Looking ahead at the third quarter, lenders indicated they expected lower farm income, with survey results showing a diffusion index value of 91. “Across the District, bankers expect farm income to fall over the course of the next quarter compared with the third quarter of 2012,” according to the report. Cash Rents Average cash rents per acre for quality Eighth District farmland during the second quarter of 2013 were higher than the first quarter 2013 and the second quarter of 2012. For the second quarter 2013, cash rents for quality farmland averaged $183 per acre, up 6.7% from an average $171 per acre in the first quarter 2013 and up 12.9% from an average $162 per acre the previous year. Meanwhile, lenders reported cash rents for ranch or pastureland of $57 per acre, down from the first quarter’s average of $64 per acre, but remaining above last year’s average of $53 per acre. Looking forward, lenders expect rents to increase in value for all land categories during the third quarter of 2013. The report also noted that “anecdotal information collected from other sources suggests some shift in cash rents toward a variable or profit-sharing basis,” might not be fully captured in current cash rent data. Ag Loan Demand And Repayments On average, lenders reported that while demand for agricultural credit across the District remained unchanged in the second quarter compared with a year ago, they expected loan demand to pick up in the third quarter. In addition, survey results showed more funds were available to prospective borrowers during the second quarter of 2013 than a year ago, and this should remain the case in the third quarter. Loan repayment rates also remained essentially the same compared with a year ago, and expected to remain unchanged in the third quarter. Average interest rates on most types of loans increased slightly from the first quarter of 2013, with rates on variable interest loans increasing more than fixed-rate loans. Continue reading
US Farmland Prices Keep On Rising
http://www.ft.com/cms/s/0/caa6bdd0-05c0-11e3-ad01-00144feab7de.html#ixzz2cP3tHszb August 15, 2013 By Gregory Meyer in New York Farmland values in a critical US agricultural region continued their rise in spite of weakening crop prices, as low interest rates and a dearth of investment alternatives spur wealthy farmers to amass more acreage, Federal Reserve economists have reported. Irrigated land in states such as Kansas and Nebraska gained 25.2 per cent year on year in the quarter ended June 30, the ninth straight quarter in which annual price rises have topped 20 per cent, the Federal Reserve Bank of Kansas City said in a survey of bankers published on Thursday. The sharp increase in the face of an expected decline in incomes will further stoke debate about whether land prices reflect fundamental farm economics or have been artificially inflated by low interest rates. In a separate survey of a district that includes Illinois and Indiana, the Federal Reserve Bank of Chicago reported farmland values rose 17 per cent from a year before. But second quarter values were unchanged from the first quarter, in the first flat quarterly results since 2009. The lion’s share of US farmland is still bought and sold by farmers, but it has also attracted large institutional investors such as TIAA-CREF and pension funds. Grain prices fell in the survey period, with hard winter wheat futures down 8 per cent in the year to June 30. Questions about the direction of US biofuels policy also weigh on investors’ minds, said Philippe de Lapérouse of consultant HighQuest Partners. The retreat in crop prices is expected to hit US farm revenues. Equipment maker John Deere forecasts a 6 per cent drop from a record $402.1bn last year to $379.7bn in 2014. The Kansas City Fed said: “Bankers expected income to drop further in the next few months due to the possibility of sharply lower corn and soyabean prices at harvest. Despite lower farm income and expectations of additional declines, farmland values surged further during the second quarter.” The survey found that farmers’ overall wealth levels, as well as “low interest rates and a lack of alternative investment options”, were more important factors behind the boom than expected incomes. To date, concerns about a looming bubble have been answered with the facts that farmers’ debts are low relative to their assets, speculators are in the minority and grain prices are still relatively high. Meanwhile, the average interest rate on farm real estate loans rose slightly to 5.38 per cent in the quarter, its first increase in more than two years in the Kansas City district. “Farm loan repayment rates softened in the second quarter and were expected to weaken in coming months with lower farm income,” the Kansas City Fed said. The Chicago Fed said most bankers envision stable land prices. “The anticipation of lower crop revenues – especially when combined with potentially rising interest rates on farm loans – portended softness in future farmland values,” its survey said. Nationally, farmland has gained 9.4 per cent on average from 2012, the US Department of Agriculture said earlier this month. Continue reading
