Fed Banks Report Weaker Farmland Demand, Declines in Credit Conditions

Cropland values are weaker as credit conditions decline, report the Federal Reserve Banks of Kansas City and St. Louis. Meanwhile, the Federal Reserve Bank of Chicago reports a more mixed view on farmland values with "good" agriculture farmland rated as steady with a year ago. The Kansas City bank reports the value of nonirrigated cropland across its district rose a scant 0.4% through the end of September compared to a year year while the value of irrigated cropland dipped nearly 1%. The value of ranchland, however, rose about 7.5% on an annual basis.

Oklahoma led gains in the value of nonirrigated cropland due to the summer rains that relieved drought conditions. Bankers in that state report nonirrigated cropland rose nearly 8% in value while irrigated cropland slipped about 4%. The mountain states of Colorado, northern New Mexico and Wyoming list a gain about about 2.5% in the value of nonirrigated cropland, again due to improving soil-moisture conditions. The region reports the value of irrigated cropland declined about 2.3%, the steepest percentage decrease across the district. Western Missouri reports the steepest annual decline in the value of nonirrigated cropland -- down about 1.6%.

Ranchland values are higher, the Kansas City bank reports. Oklahoma with its improving soil moisture conditions lists a 13% rise followed by a 9% gain in Nebraska, a 6.8% rise in the mountain states, and 5% boosts in Kansas and western Missouri.

The decline in farm incomes and eroding credit conditions has bankers in the Plains expecting a decrease in the value of all three categories of farmland for the fourth quarter. This is the first time in six years that ag bankers in the Kansas City district expected values in each category to fall in the months ahead.

The Federal Reserve Bank of St. Louis reports quality farmland values across its district declined by 2.6% compared to a year earlier. Ranch or pastureland values, however, rose about 5%. Cash rents for both quality farmland and ranch or pastureland rose modestly in the third quarter, the bank states. Bankers expect land values and cash rents for quality farmland and ranchland or pastureland to decline in the final quarter of 2015 compared to a year earlier.

"Reductions in farm income have continued to raise concerns about the liquidity of some District farm borrowers," the Kansas City Federal Reserve Banks reports. 'Expectations of further slumps in farm income have led agricultural lenders to continue to stress the importance of maintaining adequate levels of working capital, especially for highly leveraged producers. Increasing demand for farm loans and softening repayment rates have raised concerns about future farm loan performance at Tenth District agricultural banks. The majority of agricultural banks in the third quarter reported less than 5% of farm loan volume had been placed on a "classified" list or a "watch" list. However, 30% of District bankers reported an increased share of farm loan volume on the watch list from a year ago, and nearly half of bankers surveyed expected their classified list and watch list to expand over the next three months," the bank said.

The Chicago Federal Reserve Bank states the value of district farmland, ranging from Iowa to Indiana and including Michigan and Wisconsin, was steady with a year earlier on Oct. 1 and up 1% when compared to July 1. The survey of ag banker's found values declined by 4% on an annual basis in Illinois and 1% in Iowa, were unchanged in Indiana and rose 5% and 4%, respectively in Michigan and Wisconsin. The survey also found that 52% of respondents expect farmland values to decline during the fourth quarter of this year.

 

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