Farmland Values, Farm Economy- Additional Federal Reserve Reports

On Thursday, the Federal Reserve Bank of Chicago released its latest edition of the AgLetter, which stated that, “Farmland values in the Seventh Federal Reserve District experienced an annual decrease of 3 percent for 2015, matching the yearly decline for 2014. Furthermore, ‘good’ farmland values in the fourth quarter of 2015 were down 1 percent from the third quarter, according to 199 survey respondents representing agricultural banks across the District. Nearly 60 percent of the survey respondents anticipated agricultural land values to decrease during the January through March period of 2016, while none expected agricultural land values to increase in the areas surrounding their respective banks.”

This follows additional reports on the farm economy this week from the Federal Reserve Banks of Kansas City and St. Louis, as well as Tuesday’s 2016 Net Farm Income Forecast from USDA.

Yesterday’s AgLetter report noted that, “Along with slumping agricultural prices, the deterioration of agricultural credit conditions extended into the fourth quarter of 2015. Repayment rates on non-real-estate farm loans were much lower in the October through December period of 2015 than in the same period of the previous year.”

More broadly, the Chicago Fed explained that, “There was a strong sentiment among survey respondents that the downward trend for capital spending on farm- land or land improvements, buildings and facilities, machinery and equipment, and trucks and autos would continue into 2016. Moreover, 59 percent of the responding bankers anticipated farmland values to decline further in the first quarter of 2016, and none anticipated them to rise.”

Reuters writer P.J. Huffstutter reported on Thursday that, “Access to such credit tightened in the fourth quarter, and is expected to continue to be squeezed in 2016, as the rate of farmers repaying existing loans slows and the value of their land falls, according to the quarterly farm economy surveys from the Fed banks of St. Louis, Kansas City and Chicago.

“The findings come as the U.S. farm economy continued a downward slide in the fourth quarter of 2015. A strong dollar, sluggish export demand and a glut of grain have kept bearish clouds over the sector and dragged down wheat prices to nearly six-year lows.”

In a related development on the value of the dollar, a news release on Friday from Sen. Heidi Heitkamp (D., N.D.) indicated that, “[Sen. Heitkamp], a member of the Senate Committee on Banking, Housing, and Urban Affairs, pressed Federal Reserve Chair Janet Yellen about the impact of the strong dollar value on commodity prices – particularly agriculture and energy commodities which are crucial to North Dakota’s economy – as Yellen testified before the Committee on her Semiannual Monetary Policy Report to Congress.”

Click here for video of Heitkamp questioning Yellen during the hearing in the Senate Committee on Banking, Housing, and Urban Affairs.

Meanwhile, the Federal Reserve Bank of Dallas recently indicated that, “District land values increased this quarter [4th Quarter, 2015]. Irrigated cropland saw the largest increase; real irrigated land values were up 4 percent over last quarter. Real ranchland values were up 3 percent over the third quarter, while real dryland values were up 1 percent. All land values were up about 2 percent from year-ago levels.”

Cash rents also moved up slightly:

More specifically with respect to Texas land values, a recent New York Times article stated that, “In Texas, where wealth is measured not in dollars but in acres, land prices have for decades followed the price of oil. ‘There is this ongoing love for the land among Texans, to the point that if you are a Texan who gets wealthy, one of the first things you start to look at is a ranch,’ said Charles Gilliland, a research economist with the Real Estate Center at Texas A&M University.

Oil money helped drive statewide rural land prices to a record high of $2,354 an acre in 2014 — more than double the price per acre in 2004.”

The Times article added that, “Now, after the collapse of oil prices from more than $100 a barrel 18 months ago, [Jay Ellis, an investment fund founder] is wagering that this link between land and oil will create opportunities to buy premium ranches at 2008 and 2009 prices, or about a 25 percent discount.”

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