Farmland values continue on an upward path in 2013 compared to year-ago rates, but more modest movement is expected as the year progresses, according to a Federal Reserve Bank of Chicago survey of more than 200 district agricultural bankers.
"Lower crop prices could slow the upward trend in farmland values," the bank reports, referencing USDA forecasts that tight stocks for corn and soybeans will ease. "Many District bankers responding to the survey appeared to share this view: For the second quarter of 2013, 19% predicted farmland values to increase, while 4% expected them to decrease; the vast majority anticipated farmland values to be stable."
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Other findings outlined in the report:
- Agricultural land values grew 4% in the first quarter of 2013 compared with the fourth quarter of last year, less growth than reflected in the previous survey.
- 15% year-over-year growth in ag land values for the period
- 11% growth in farmland cash rental rates compared with last year’s rates
- State-by-state variation: Wisconsin farmland values fell 3% year-over-year for the quarter, while Michigan saw better growth compared to the previous quarter. Illinois and Iowa saw increases comparable to those of the previous quarter.
Similar findings were noted in a Kansas City Federal Reserve Bank report covered by the Wall Street Journal. There, prices for nonirrigated farmland rose 3.4% from the previous quarter, less than a 7.7% increase recorded for the same period one year ago.
In the St. Louis region, the value of quality farmland fell by an average of 2.3% quarter-over-quarter, while ranchland and pasture fell by an average of 5.1%.
"Much of the 2013 crop inputs have been paid and they still have low operating loan balances," one banker told the Federal Reserve Bank of St. Louis in its quarterly report. "But there is a group of young farmers that have only seen the ‘buy today because it will be higher tomorrow’ and are accumulating some high debt totals. If asset values cycle down they could be put in a difficult financial situation with a resulting high debt ratio and large debt service requirements. The recipe for lower land values will be lower grain prices, meaning lower net income to service those debt requirements. Very similar to my early lending years of the early 1980s."
Meanwhile, the financial condition of livestock and poultry producers in the St. Louis bank’s region largely remains unchanged from a year ago, respondents say. One-third of the 55 reporting banks saw a modest or more significant deterioration in financial condition, while 47% said financial condition has not changed.