Farmland Value Indicators- Regional Federal Reserve Reports

Today, the Federal Reserve Bank of St. Louis released its Agricultural Finance Monitor, which contained a summary of survey data on agricultural credit conditions for the eighth federal reserve district in the fourth quarter of 2015.

The Fed report stated that, “According to the latest survey of agricultural bankers in the Eighth Federal Reserve District, farm income continued to weaken in the fourth quarter of 2015 compared with the same period a year earlier. Proportionately more bankers expect further declines in farm income in the first quarter of 2016 relative to a year earlier. Similar to our previous survey, large majorities of bankers reported that household spending and farm expenditures on capital goods continued to decline in the fourth quarter and will likely continue to do so in the first quarter of 2016. Eighth District land values declined in the fourth quarter from a year earlier.”

More specifically with respect to farmland values, today’s report pointed out that, “Although the fourth-quarter decline (2.5 percent) was about equal to the previous quarter’s decline, it was the third decline in the past four quarters.”

On the issue of cash rents, the Fed stated that, “Cash rents for quality farmland fell by 9.5 percent in the fourth quarter of 2015 compared with a year earlier; this decline was the largest in the relatively short history of the survey. By contrast, cash rents for ranchland or pastureland rose by 8.6 percent in the fourth quarter after increasing by 2.5 percent in the third quarter. Bankers expect that cash rents for both quality farmland and ranchland or pastureland will decline in the first quarter of 2016, as indicated by their index values of 52 and 58, respectively.”

The Fed report also incldued this overview: “Farmland returns are defined as rents less expenses divided by the market value of the land. Although farmland returns are thus dependent on many factors, a little more than three-quarters (77 percent) of bankers reported that they expect returns in 2016 to be positive, but less than 5 percent. Thirteen percent expect returns greater than 5 percent but less than 10 percent, while 10 percent expect farmland returns to be negative in 2016.”

Meanwhile, the Federal Reserve Bank of Kansas City indicated today (“Farm Economy Tightens Further”) that, “Farmland values in the Tenth District dipped again in the fourth quarter. According to respondents of the Tenth District Survey of Agricultural Credit Conditions, values of nonirrigated and irrigated cropland decreased 4 percent and 2 percent, respectively, from a year ago (Chart 1). With the fourth quarter declines, irrigated cropland values have fallen modestly in four consecutive quarters, and the value of nonirrigated cropland generally followed the same trend through 2015.”

The KC Fed report noted that, “Survey respondents expected farmland values to fall further in the coming months.”

And on cash rents, the KC Fed indicated that, “Similar to farmland values, cash rents softened in the fourth quarter.”

On the broader issue of farm income, today’s report explained that, “Bankers expected farm income to remain subdued in the coming months.”

For more detail on the 2016 farm income forecast from USDA, just click here.

Jesse Newman reported today at The Wall Street Journal Online that, “Farmland values dropped across much of the Midwest in the fourth quarter, according to Federal Reserve reports on Thursday, a symptom of continued weakness in the agricultural sector fueled by several years of depressed crop prices.”

Today’s Journal article stated that, “The reports reflect a continuing downturn in the U.S. farm economy, which has been marked by listless crop prices and softer demand for agricultural land after prices for both shot higher for much of the past decade. The yearslong farmland boom was fueled by drought and growing demand for grain from ethanol producers and foreign importers.”

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