Survey Confirms Bearish Attitude on Farmland Prices by Bankers

Published on: 15:51PM Jul 17, 2014

Mike Walsten

Central U.S. ag bankers are pessimistic on farmland values and farm profitability looking ahead into 2015. That's the read from the July Rural Mainstreet Index survey conducted by Dr. Ernie Goss, Creighton University, Omaha, Nebraska. The survey covers approximately 200 rural communities with an average population of 1,300 over a 10-state region from Colorado to Illinois. The results provide a reading on economic activity and outlook for rural, agricultural and energy-dependent areas of the Central U.S.

The Rural Mainstreet Index (RMI), which ranges between 0 and 100, with 50.0 representing growth neutral, fell to 51.8 from June's 53.6. "Agriculture commodity prices have plummeted for farmers in our region. The drop has slowed growth in the region according to our survey with prices below breakeven for a significant share of agriculture producers. I expect readings to move even lower as these lower prices spill over into the broader economy in the weeks and months ahead," says Goss.

The farmland and ranchland-price index for July slumped to 48.3 from June's weak 49.1. "Much weaker crop prices are definitely taking some of the air out of agriculture land prices. At this point in time, land prices appear to be moving gradually lower without significant volatility," states Goss.

The July farm-equipment sales index slumped to 33.4 from June's very weak 35.0. The index has been below growth neutral for 13 straight months. "Farmers have certainly become more cautious in their purchase of both additional land and equipment. This is having negative impacts on implement dealers across the region," says Goss.

According to a large share of bankers, crop prices, including corn, are close to or below the breakeven price for farmers. Approximately, one-third of bankers, 31.6%, reported current crop prices are below farmers' breakeven price. But as reported by Scott Tewksbury, president of Heartland State Bank in Edgeley, N.D., current spot prices for corn in his area are below $3.00 per bu. and well below the cost of production. As a result, more than four in 10 bankers, 40.3%, expect loan defaults to climb in the year ahead if crop prices remain at current levels.

However, previous strong farm economic conditions are expected to soften the impact of current low prices. According to Todd Douglas, CEO of the First National Bank in Pierre, S.D., "A majority of agriculture borrowers have strong enough balance sheets to cover lower commodity prices for a short-term period, however, not for a sustained period." According to Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Ill., "Cash margins and strong balance sheets will keep defaults modest for one year, but look out beyond that!"

Other bankers look for the improved financial sophistication of farmers to soften the blow of lower prices. For example, Jim Ashworth, president of Carlinville National Bank in Carlinville, Ill., notes, "In general, area farmers have become better at marketing their grain and hedging their price exposures than in years past." Jeff Bonnett, president of Havana National Bank in Havana, Ill., indicates he expects significant economic impacts from current low corn prices for rural areas if farmers do not experience a large decrease in input prices.

If interested in seeing a copy of LandOwner, just drop me an email at [email protected] or call 800-772-0023.