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July 2013 Archive for Your Precious Land

RSS By: Mike Walsten, Pro Farmer

Mike Walsten has covered major business trends in agriculture for more than 40 years.

Appraisal Update Finds Cooling Iowa, Nebraska Farmland Markets

Jul 23, 2013

Mike Walsten

We've talked about the stabilizing process that's underway in the Midwestern farmland market in several recent issues of LandOwner newsletter. Now, new data released to LandOwner from Farm Credit Services of America (FCSAmerica) supports our view.


The Omaha-based lender is the largest ag real estate lender in its four-state service region, which covers Iowa, Nebraska, South Dakota and Wyoming. The association monitors ag real estate value trends through its semi-annual appraisal update of 65 benchmark farms located throughout its service area. Its appraisal team reviews thousands of completed farm real estate transactions in the process.


It's July 1 update shows the value of the 21 Iowa benchmark farms rose slightly more than 6% during the first half of 2013 compared to the 13.8% surge the last half of 2012. The 19 Nebraska benchmark farms show a 7% rise — down from 12.3% the last half of 2012. Those gains amount to about a one-percentage-point gain per month. In our view, that type of increase points to a market that is transitioning into a stabilizing market.


The 23 South Dakota benchmark farms report a 9.5% six-month gain. While down from the astonishing 17.6% burst seen last half of 2012, the 1.6%-per-month increase is too strong to be considered a market that is stabilizing.


The update shows a lift in the value of Wyoming farmland. The update lists a gain of 3.3% for the first half of 2013. That compares to no change in values during the last half of 2012. FCSAmerica says the rise in Wyoming is driven by increases in cropland values that offset slight declines in the value of ranchland in the state.


Additionally, the Iowa market seems to be in the same spot as it was a year earlier. Land values were stabilizing after posting a 6.2% rise the previous six months. But values surged as grain prices rocketed. That does not seem likely this year with soil moisture supplies re-charged. But this crop is not yet in the bin.
However, Nebraska is cooling, too. Its current rise of 7.1% is the first single-digit six-month rise since last half of 2010.
 

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

KC Fed President Sees Only Slim Chance of Farmland Bubble

Jul 17, 2013

Mike Walsten

Throughout the run-up in farmland values, the Federal Reserve Bank of Kansas City has been a consistent and vocal voice of caution and warnings concerning a potential farmland bubble. Those warnings came initially from former Bank President Thomas Hoenig and continued under current President Ester George. That's why it comes as a bit of surprise that President George now lists as slim the possibilities of a 1980s-stlye debt and farmland bubble.

In a story written by Christine Stebbins for Reuters, George is quoted as saying: "Today's landscape and the amount of leverage that we saw in the '70s in the farm sector seems to be absent today. I trumped that up to some lessons learned," she said, referring to the 1980s farm crisis. You will find that some of our ag banks clearly remember some of the issues they faced with collateral-based lending. So in the banking industry we do not see the levels of leverage that characterized what we saw then."

That's not to say George sees farmland escaping completely a decline in farm incomes and a rise in interest rates. "The run-up in the land values is likely to still create issues for those that are exposed in some way," she said. "Will we see it as broadly as we did in the '70s? Not the same scenario. But we will still see some fallout if there is a strong correction."

Some may feel this is a sign of top in the farmland market when a major "bear" throws in the towel. That's not how we see it. We see it as the Fed doing its job to constantly remind farmers and ag lenders of the pitfalls of highly leverage land purchases. If farmers and land investors can continue to restrain their use of debt over the next two to three years as interest rate rise and net farm incomes decline, then the industry has a good chance of working through the inevitable correction in farmland values.

Click here for the complete story.
 

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Farmland Market in Transition

Jul 05, 2013

Mike Walsten

The farmland market appears to be in transition, moving from the hot demand-fueled market of late 2012 into a more stable market. Recent surveys conducted by the Federal Reserve Banks of Chicago, Kansas City and Minneapolis tend to confirm this trend. These banker surveys reflect continuing gains in the value of farmland during the first quarter of 2013, but the rate of that increase is at a slower pace compared to the last quarter of 2012.

For instance, the survey reported the value of good agricultural Illinois farmland rose 5% during the first quarter of 2013. That's still an amazing 20% annualized rate. But that gain is down from the 9% quarterly increase noted the previous quarter. The survey reported a 4% rise for the first quarter of 2013 in the value of Indiana farmland. That is down from the 7% quarterly gain noted the fourth quarter of 2012. The survey listed a 3% quarterly increase for Iowa, down from the 8% quarterly gain noted in the previous report.
Nebraska noted only a 1% boost in the value of non-irrigated cropland during the first quarter of 2013 - down from the 8% rise noted the fourth quarter of 2012. The survey reported a 4% rise in the value of irrigated cropland in the first quarter of 2013. That is down from the amazing 13% surge reported in the fourth quarter of 2013. Minnesota reports a rise of 5% during the first quarter of 2013. That compares to an 8% boost for the last quarter of 2012.

It does not appear that land values have continued to rise at their first-quarter pace during the second quarter and into summer. The market has been showing the signs of a market transitioning into a stable market. For example, some land auctions have posted new highs for the area, but some have gone to "no sale" for various reasons. Others have resulted in strong prices, but the "electricity" seen so often at auctions last fall is absent in the room. In addition, some auctions of poorer quality farmland have seemed "soft."

The shifting market is not surprising given the outlook for commodity prices and declining net farm income for 2013 and again in 2014. Input costs are on the rise, as usual. And interest rates have taken a sudden upswing, lifting mortgage rates. This declining outlook is naturally causing buyers to be much more cautious about purchases.

Offsetting the decline in the strength of demand is a continuing lack of supply. The end of 2012 saw a rush of properties moving to the market as those owners who needed to sell pushed their offerings into 2012 to avoid potential tax issues. With that supply removed from the market, market supplies are reduced. That reduced supply will tend to support prices as the market adjusts to the lower demand resulting from declining net farm incomes.

 

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

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