Confidence in Farmland Values Remains Strong
Feb 18, 2014
Farmland values set new records in 2013 following another year of increases in the Tenth Federal District. Continuing with the trend of the past few years, farmland values saw year-over-year increases with irrigated and nonirrigated farmland appreciating across the District by 7.4% and 9.2% respectively. Although farmland values appreciated, the pace of that appreciation slowed due to a drop in crop prices since early 2013
Source: Federal Reserve Bank of Kansas City Tenth District Agricultural Credit Conditions report
Of the bankers surveyed across the Tenth District, an overwhelming 84% were optimistic about farmland values remaining at current levels or increasing in 2014. Competition for purchasing farmland is still very strong in the District with farmers being the most active participants. Land quality has been cited as the main driver for price appreciation in the District, with significantly less demand for marginal ground.
Crop production for the Tenth District increased significantly in 2013. The increase was expected for the region that was most seriously affected by the 2012 drought. The sharp rise in production did not equate to a rise in farm income as grain prices fell 40% in 2013. Banker’s outlook for farm income in 2014 is equally as pessimistic with grain prices expected to remain low in the coming year.
Lower farm income in 2013 drove demand for operating loans during the fourth quarter which increased loan demand to a five-year high. Increased production and lower grain prices led farmers to store more crop following the 2013 harvest, causing an increase in the demand for short-term lending as farmers prepare for the 2014 planting season. Loan repayment declined in 2013 and renewals and extensions increased as a result of decreased farm income.
Despite the increase in borrowing demand, bankers kept interest rates low for operating and real estate loans. Bankers also reported little change in collateral requirements suggesting that they are still optimistic moving into 2014.
Decreased grain prices and increased production in 2013 slowed the extreme pace of farmland value appreciation seen over the past few years. Farmers continue to be interested in purchasing land as attendance at auctions and competition for high quality farmland remained high. Despite lower farm income in 2013, bankers were still confident in the industry keeping interest rates and collateral requirements at similar levels. Opportunities for land purchase and lease back should be strong in 2014 as farmers are looking to increase their operating capital as the planting season nears.
The Federal Reserve Bank of Kansas City’s fourth quarter survey of Farmland Values and Agricultural Credit Conditions Report is a summary of the Tenth District’s value of farmland, farm loan portfolio performance, and on-farm income. The Tenth District consists of Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico, and the western third of Missouri.
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