Farmland values fell in the first quarter across much of the Midwest, the latest sign of a downturn in the market after a yearslong boom driven by rising commodity prices, according to new Federal Reserve reports.
The average value of agricultural land in the Federal Reserve Bank of St. Louis’s district, which includes parts of large corn-growing states Illinois and Indiana, fell 6% in the first quarter compared with the fourth quarter of last year, the bank said.
Prices for nonirrigated farmland in the Kansas City Federal Reserve’s district, which includes Kansas and Nebraska, declined 1.4% over the same period. Meanwhile, the Federal Reserve Bank of Chicago reported a 1% quarter-to-quarter decline, the first in five years for a district that includes Iowa, Michigan and parts of Illinois and Indiana.
The reports show the U.S. farmland market has softened further after cooling last year as U.S. grain and soybean prices fell sharply due to large harvests. Farmers produced the biggest corn crop ever last autumn, just one year after the nation’s worst drought in decades drove prices for the grain to record highs. Corn futures prices at the Chicago Board of Trade have fallen 24% over the past year.
The market for farmland is “lukewarm,” said Jim Benham, who grows soybeans near Versailles, Ind. “Back when we were having the drought and looking at $8 [per bushel] corn, folks were a heck of a lot more aggressive than they are now.”
Farmland values offer one gauge of the health of U.S. agricultural sector. Land often secures farmers’ loans to buy machinery, crop supplies or additional acres. Some economists, including Fed officials, have warned of the potential for economic hardship if land values rapidly decline after a roughly decadelong rise.
The average value of “quality farmland” in the St. Louis Fed’s district fell to $5,496 an acre in the first quarter, down from $5,868 an acre in last year’s fourth quarter, according to the bank’s survey of agricultural lenders. The shift came after a gain in the fourth quarter, St. Louis Fed officials said, and more bankers expected land prices to dwindle further in the current quarter. The district includes parts of Missouri, Arkansas and Kentucky.
Nearly three-quarters of bankers surveyed by the Chicago Fed see farmland values holding steady during this year’s second quarter, though a growing number took the view that prices will slide further. The Chicago report found the steepest percentage declines in Illinois and Indiana farmland, though prices moved higher in some areas.
Agricultural lenders surveyed by the Kansas City Fed forecast that farmland prices in that bank’s district would continue to slide. “Expectations of lower profits for crop producers have generally halted the rise in District cropland prices,” Kansas City Fed economists wrote in their report.
The price of ranchland used to raise livestock, however, likely will move higher, according to Kansas City-district lenders. Livestock producers in the region have enjoyed improved profitability thanks to lower feed prices, which have fallen 10% from their 2012 peak thanks to last year’s big harvests, while prices for cattle and hogs have moved higher due to smaller domestic herds, according to that bank’s report.
About 40% of the bankers surveyed by Kansas City Fed analysts expected 2014 farm income would fall short of last year’s levels. Farm loan repayment rates in the district fell in the first quarter and were expected to move lower in the coming months, while lower income led more farmers to take out operating loans, according to the bank’s report.
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