KC Fed Survey Finds Steady Farmland Prices, Weak Farm Incomes

Asurvey of local lenders conducted by the Federal Reserve Bank of Kansas City finds that farmland values in the central Plains/western Corn Belt held steady during the third quarter of the year, despite falling farm income and weaker agricultural credit conditions.

The Fed questioned bankers in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, plus small portions of western Missouri and northern New Mexico, about their local land market.

“Compared to the previous quarter, nonirrigated cropland values were flat and the value of irrigated acreage dipped less than 1%,” said Kansas City Fed economist Brian Briggeman. “Ranchland values were just 1% lower than second-quarter levels, due mostly to value declines in Nebraska and Kansas. The value of Oklahoma ranchland actually rose...as drought conditions eased.”

However, prices for most classes of farmland remain lower than a year ago.

“Since falling in the fourth quarter of 2008, District farmland values overall appear to have reached a plateau,” he noted. “Compared with last year’s third quarter peak, nonirrigated land values dipped 1.7%, irrigated land values were down 3%, and ranchland values fell 4.2%.”

In response to a special survey question, bankers estimated that average income levels of their grain/livestock borrower-customers would decline by an average of roughly 10%-15% in 2009, as a result of depressed consumer protein demand and lower cash grain prices.

“With shrinking margins, livestock producers have been cutting supplies, by culling herds and consolidating feedlots,” said the report.

With lower incomes, farm credit conditions eroded during the third quarter. More bankers reported lower loan repayment rates and a rise in loan renewals/extensions. Bankers forecast that these trends will continue through the end of the year, although a majority still expected farmland values to hold steady over the next three months.

Source: CME Group