17 Bankers Talk Farmland Values, Challenges, Opportunities

November 20, 2018 07:19 AM
 

Farmer income continues to decline in much of the Great Plains, according to the latest Ag Credit Survey by the Federal Reserve Bank of Kansas City.

“Expectations for farm income and loan repayment rates were lowest for areas and operations more concentrated in soybean, corn, hog and dairy production as uncertainties surrounding trade continued,” write Cortney Cowley, economist and Ty Kreitman, assistant economist with the Kansas City Federal Reserve Bank. “Alongside lower repayment rates, working capital deteriorated moderately while bankers’ loan portfolios in crop-producing states showed slightly higher levels of risk.”

Ag lenders in the Kansas City District, which includes Nebraska, Kansas, Oklahoma, Colorado, Wyoming, northern New Mexico and western Missouri, report more operators plan to sell mid- to long-term assets compared to a year ago.

Even with continued financial strain for farmers, farmland values have remained stable. When comparing third quarter 2018 versus third quarter 2017:

  • Non-irrigated cropland declined 1.6%
  • Irrigated cropland declined 2.2%
  • Ranchland increased 2.4%

The Great Plains bankers expect farm income and reduced liquidity could weigh on farmland values in future quarters.

Around 175 bankers contributed to the Federal Reserve Bank of Kansas City’s third quarter survey. Here are a handful of their takeaways of the current economic landscape for their region. 

Key Challenges

Higher interest rates, along with increasing fuel and repair costs are key concerns for producers. – Southwest Kansas

Much of our area was hit with significant drought, which paired with the currently low commodity prices has reduced capital for most producers. – Northeast Kansas

Devaluation of land, cattle and equipment are causing adjusted analysis of borrowing capacity and cash flow. – Central Kansas

Deteriorating working capital and overall equity erosion of ag customers is starting to have a significant impact on producers and lenders. – Western Nebraska 

We are on the border line between drought and severe drought. Most farm customers will produce 60 to 80% of normal and will have income deficiencies. – Western Missouri

We expect farm operations to lose money in 2018 with many facing the need to restore working capital by refinancing land or possibly selling assets in spring of 2019. – Southeast Nebraska


Impact of Trade Uncertainty 

Current grain prices make it very hard for borrowers to cash flow. Trade agreements need to be worked out with other countries to hopefully help prices rebound. – Southwest Kansas

Predictions of large 2018 corn supply and the current trade war is adversely affecting the agriculture sector in our area. – Western Nebraska 


Farmland Values

The real estate market has been slow lately, but we anticipate some sales this fall and winter. – Northeast Kansas

Surprisingly, we are seeing stronger land prices despite current commodity prices. – Northeast Kansas

There have been very few land sales in this area during the past three months with little change in values. – Southwest Nebraska

With current commodity prices, nobody is buying land. – Central Nebraska

Low commodity prices are going to negatively affect land values and rental rates. – Northeast Nebraska

It is going to be a tough renewal season. We have heard of a lot of land that is going to be pushed on the market this winter to shore up debt or liquidity positions. – Eastern Nebraska

 

Reasons To Be Optimistic

Crops in the area look good and some operators have benefitted from good cattle prices. – Southwest Kansas

Abundant rain during the growing season will provide average yields. Yields should offset the commodity price declines. – Southwest Kansas

We seemed to have a good wheat harvest, and I think a good fall crop harvest is on its way. I believe that this will get our farmers through the year. - Northwest Kansas


 

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