Farmland Prices Steady to Lower in Much of Central U.S

By Jesse Newman 

        Farmland values were flat to lower in parts of the U.S. Midwest and Great Plains in the second quarter, according to Federal Reserve reports Thursday, reflecting the continued impact of lower grain prices on farmers' incomes and the broader agricultural economy.
        The average price of farmland in the Federal Reserve Bank of Chicago's district, which includes Illinois, Iowa and other big farm states, fell 3% compared with year-ago levels and 1% compared with the first quarter of 2015, the bank said. Agricultural land values in Illinois and Iowa, the two largest U.S. corn-producing states, both declined on a yearly basis for at least the fourth consecutive quarter, while values in Indiana and Michigan rose from year-ago levels.
        In the Federal Reserve Bank of Kansas City district, which includes Kansas, Nebraska and Missouri, the average price of non irrigated cropland dropped more than 4% compared with the first quarter and was down nearly 3% from the year-earlier period, the bank said. Irrigated land values held steady on a quarter-to-quarter basis but fell more than 3% from a year earlier. Irrigated cropland, common in the region, depends on man-made water systems for moisture rather than rainfall.
        In the St. Louis Fed's district, which also includes parts of Illinois, Kentucky and Arkansas, prices for "quality" farmland remained largely the same in the second quarter compared with a year ago, despite lower farm incomes in the region, the bank said in a report.
        The three reports underline a continuing slowdown in the U.S. farm economy and for land values after prices soared for much of the past decade. Agricultural land values, which were buoyed by rising demand for grain and drought-stricken crops that shrunk supply, reached such lofty heights that some analysts cautioned a bubble was forming in the market.
        But consecutive years of record U.S. crops have pressured prices for corn, crimping farmers' profits and weighing on land values. Prices for the grain are currently trading below $4 a bushel, less than half what they were when a scorching U.S. drought boosted prices to record highs in 2012. Although heavy rains flooded fields early in the growing season this year, spurring a brief rally in grain prices, U.S. farmers remain on track to produce the third-largest corn crop ever, according to a U.S. Agriculture Department report on Wednesday.
        The Chicago Fed said its survey of Midwestern lenders overall suggested land values would continue to weaken and predicted agricultural loan volumes would increase due to persistently low prices for crops like corn and soybeans.
        "Given lower prices for key crop and livestock products, many farm operators have returned to lenders in order to shore up reserves of working capital while attempting to ride out the downward cycle in agriculture," David Oppedahl, senior business economist at the Chicago Fed, wrote in Thursday's report.
        Cash rents--the rent paid by farmers to landowners--posted "notable" declines in the second quarter, the St. Louis Fed said. A majority of lenders in the district expect continued erosion of farm incomes to further weigh on land values in the current quarter, as well as cash rents, farm household spending and capital-goods expenses.
        Farmers in northeast Missouri, where rain drenched fields, who "are conservative will survive, but the young farmers just starting out with a lot of [loan] payments will be in trouble," said a Missouri banker in Thursday's St. Louis Fed report.
        Lenders in the Kansas region also warned of financial strain to come for some U.S. growers, with loan demand likely to increase amid deteriorating incomes.
        "Bankers were concerned that potential yield losses, coupled with lower crop prices, could put further pressure on crop producers' profit margins," the Kansas City Fed said in its report Thursday. "Weaker cash flow could continue to intensify financial stress for some producers as the fall harvest approaches."
        In one bright spot, ranch land values in the Kansas region were propped up by stronger profits in the livestock sector, though bankers expect prices for ranch land to temper in coming months, according to the report.
        Write to Jesse Newman at jesse.newman@wsj.com
        (END) Dow Jones Newswires

        August 13, 2015 14:30 ET (18:30 GMT)