WASHINGTON, Aug. 15 - Despite lower farm income and expectations of additional declines, farmland values surged further during the second quarter of 2013, according to the Federal Reserve Bank of Kansas City’s quarterly Survey of Agricultural Credit Conditions, authored by Economist Nathan Kauffman. But fewer bankers surveyed expect the trend to continue.
Irrigated cropland values jumped 25 percent from a year ago - marking the ninth consecutive quarter in which irrigated cropland values have risen more than 20 percent year-over-year. Nonirrigated cropland values advanced 18 percent from the previous year, a slightly slower pace of growth than in the first quarter. Ranchland values also rose, gaining 14 percent year-over-year.
The Tenth District’s territory includes parts of the states of New Mexico and Missouri, as well as the entire states of Colorado, Kansas, Nebraska, Oklahoma and Wyoming.
While most bankers expected farmland values to remain at current levels, an increasing number of respondents felt farmland values might have peaked.
“Compared with previous surveys, fewer bankers expected farmland values to keep rising. More bankers also expected farmland values to drop after harvest likely due, at least partially, to expectations of lower farm income. Among bankers anticipating a decline, though, a majority estimated farmland values would fall less than 10 percent during the next year. Very few bankers expected that farmland prices would drop more than 10 percent,” noted the report.
“Bankers surveyed indicated that expected farm income was not the main factor contributing to the value of farmland. Instead, bankers cited the overall wealth level of the farm sector, supported by several years of strong income, as the primary driver of farmland values. Low interest rates and a lack of alternative investment options were also noted as significant factors, ahead of farm income expectations.”
The survey indicated that farm income was showing signs of stress and that conditions are expected to worsen next year.
“Overall, farm income across the district fell in the second quarter and bankers expected a further drop in coming months. A poor winter wheat harvest in the Tenth District and a decline in wheat prices brought on by strong global production pushed farm income lower. Ongoing weakness in the livestock sector also limited farm income growth as operators continued to endure high feed and forage costs combined with falling cattle prices,” Kauffman noted.
Bankers expected income to drop further in the next few months due to the possibility of sharply lower corn and soybean prices at harvest.
According to survey respondents, operating loan demand rose to its highest level in more than two years.
“Loan repayment rates improved modestly, but bankers expected repayment rates to fall in the future with weakening farm income,” noted the report. “In addition, interest rates for farm real estate loans edged up during the quarter, which could make repayments more difficult. Interest rates on farm operating loans decreased slightly in the second quarter, but by the smallest percentage in three years.”
The complete survey is available at www.KansasCityFed.org/agcrsurv/agcrmain.htm.
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