Farm Income and Land Values Continue to "Soften"
May 19, 2014
I periodically recap some of the surveys done by the Kansas City Federal Reserve. Their region comprises one of the major corn belt states (Nebraska) along with Kansas, Missouri, Oklahoma and the Mountain States. The survey released on May 15 recapped the responses of Ag bankers in the district. These bankers reported lower farm income in the first quarter as compared to the first quarter of 2013 primarily due to tighter margins for farm producers. The district calculates a diffusion index to show how high or how low expected farm income is to actual farm income. This index subtracts the percentage of responses indicating lower farm income from the percent indicating higher farm income and then adds 100 to it. If the highs and lows are equal, the index would stand at 100. Over the last 10 years, this index has ranged from a low of under 60 in 2009 to a high of 160+ in 2011. 2007-2008 the index was at a high of about 150; during 2009-2010, it was under 100 and from 2011 to 2013, it was over 100. Starting early last year, the index has stayed under 100 with a current reading slightly less than 80.
Although crop prices have trended down hurting row crop farmers, these low prices have help livestock producers rebound nicely. This district is composed of several of the top 10 livestock states (Nebraska, Missouri, Kansas and Oklahoma). The value of cow-calf production less operating costs jumped 34% from 2012 to 2013 and it appears that 2014 should see another good size jump if current trends continue.
Farmland values dipped about 1.4% from the fourth quarter of 2013 to the first quarter of 2014 for non-irrigated ground. Irrigated ground eked out a small .5% gain. As could be expected, high-quality grazing ground increased by about 2.6% in the quarter. Nebraska, being the third largest corn producer in the country, saw the largest drop in farmland values falling about 5% for the quarter.
During the quarter, the demand for farm loans increased and bankers reported seeing more requests for loan renewals and extensions than in years past. The demand for capital spending is approaching the lows last seen in 2009-2010. Part of this may be due to the continued uncertainty regarding Section 179 and Bonus Depreciation.
Although farm income is softening, the 228 bankers responding still indicate farming is very healthy and after several strong years, a softening is to be expected.