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Farm Belt’s Boom Shows Signs of Slowing
The Wall Street Journal Menu By Mark Peters The rise in prices for agricultural land slowed somewhat to start the year in parts of the U.S. Farm Belt, new reports showed, signaling a boom in land values might be moderating as commodity prices cool and incomes for farmers are expected to weaken. The Kansas City Federal Reserve Bank said in a report Wednesday that prices for nonirrigated farmland in its region rose 3.4% in the first quarter from the fourth quarter of 2012. That was much slower than the 7.7% quarter-to-quarter increase recorded for the same region a year earlier. A separate report from the St. Louis Federal Reserve Bank also released Wednesday showed that land values in parts of the Midwest and Southeast regions fell by an average of 2.3% in the first quarter compared with the previous quarter. Analysts cautioned against making too much of a single quarter. And even with those slower rates, values for nonirrigated farmland in the Kansas City district, which stretches from western Missouri to Wyoming, have soared a total of 19.3% over the past year to record levels, the bank said. More information will come on Thursday in a report expected from the Federal Reserve Bank of Chicago, whose region includes several of the biggest corn-growing states in the upper Midwest. Economists have been watching farmland values closely, with some voicing concern about a possible bubble, as farmers have plowed the money from a record run-up in commodity prices back into the land. A low interest-rate environment has exacerbated the situation, making the rising farmland more attractive for farmers seeking better returns on their money. But signs of a slowdown are emerging. The benchmark corn contract has fallen more than 20% from records set last summer as federal forecasters predict a record corn crop this autumn. Farmers’ costs also are increasing, especially for key goods such as seed and fertilizer, the Kansas City Fed said. On Wednesday, tractor maker Deere & Co. forecast net cash income for U.S. farmers will fall 9.5% to $122.7 billion in 2013. But executives added that farmers should be able to withstand lower incomes because debt levels aren’t rising, even after big investments in land and equipment in recent years. “You see in the U.S. very strong farmer balance sheets, despite what’s been happening with land prices,” said Deputy Financial Officer Marie Ziegler. Nathan Kauffman, an economist with Kansas City Fed, said it will take a few quarters to determine whether the first quarter’s “modest” slowdown marks a fundamental shift in the farmland market or a short-term ebb. Bill Davis, chief credit officer at Farm Credit Services of America, said the agricultural lender saw a flurry of sales at the end of 2012 as farmers sold land ahead of tax increases that took effect this year. And while sales continue in farm states such as Iowa and Nebraska, the surge in prices hasn’t. “We have seen things level off in the first quarter,” he said. Bankers surveyed by for the Kansas City Fed’s latest report said debt levels for farmers generally remain manageable. But they noted that young farmers and those who are expanding operations face rising debt levels. The Fed bank has warned that farmers historically have increasingly turned to debt to continue capital investments even as incomes decline, which can magnify problems in a downturn. –Bob Tita contributed to this article. Continue reading
Prices for Farmland Show Moderation
By MARK PETERS The rise in prices for agricultural land slowed somewhat to start the year in parts of the U.S. Farm Belt, new reports showed, signaling a boom in land values might be moderating as commodity prices cool and incomes for farmers are expected to weaken. The Kansas City Federal Reserve Bank said in a report Wednesday that prices for nonirrigated farmland in its region rose 3.4% in the first quarter from the fourth quarter of 2012. That was much slower than the 7.7% quarter-to-quarter increase recorded for the same region a year earlier. A separate report from the St. Louis Federal Reserve Bank also released Wednesday showed that land values in parts of the Midwest and Southeast regions fell by an average of 2.3% in the first quarter compared with the previous quarter. Analysts cautioned against making too much of a single quarter. And even with those slower rates, values for nonirrigated farmland in the Kansas City district, which stretches from western Missouri to Wyoming, have soared a total of 19.3% over the past year to record levels, the bank said. More information will come on Thursday in a report expected from the Federal Reserve Bank of Chicago, whose region includes several of the biggest corn-growing states in the upper Midwest. Economists have been watching farmland values closely, with some voicing concern about a possible bubble, as farmers have plowed the money from a record run-up in commodity prices back into the land. A low interest-rate environment has exacerbated the situation, making the rising farmland more attractive for farmers seeking better returns on their money. But signs of a slowdown are emerging. The benchmark corn contract has fallen more than 20% from records set last summer as federal forecasters predict a record corn crop this autumn. Farmers’ costs also are increasing, especially for key goods such as seed and fertilizer, the Kansas City Fed said. On Wednesday, tractor maker Deere DE -4.40% & Co. forecast net cash income for U.S. farmers will fall 9.5% to $122.7 billion in 2013. But executives added that farmers should be able to withstand lower incomes because debt levels aren’t rising, even after big investments in land and equipment in recent years. “You see in the U.S. very strong farmer balance sheets, despite what’s been happening with land prices,” said Deputy Financial Officer Marie Ziegler. Nathan Kauffman, an economist with Kansas City Fed, said it will take a few quarters to determine whether the first quarter’s “modest” slowdown marks a fundamental shift in the farmland market or a short-term ebb. Bill Davis, chief credit officer at Farm Credit Services of America, said the agricultural lender saw a flurry of sales at the end of 2012 as farmers sold land ahead of tax increases that took effect this year. And while sales continue in farm states such as Iowa and Nebraska, the surge in prices hasn’t. “We have seen things level off in the first quarter,” he said. Bankers surveyed by for the Kansas City Fed’s latest report said debt levels for farmers generally remain manageable. But they noted that young farmers and those who are expanding operations face rising debt levels. The Fed bank has warned that farmers historically have increasingly turned to debt to continue capital investments even as incomes decline, which can magnify problems in a downturn. —Bob Tita contributed to this article. Write to Mark Peters at mark.peters@dowjones.com A version of this article appeared May 15, 2013, on page A2 in the U.S. edition of The Wall Street Journal, with the headline: Prices for Farmland Show Moderation. Continue reading
Farm Land Prices: A Correction Maybe, Not A Bursting Bubble
Hembree Brandon What is in this article?: Farm land prices: A correction maybe, not a bursting bubble Government monetary policy unsustainable Bank set records in 2012 “Some people feel farm land prices are too high right now; others say prices will keep steadily going up, but at a slower rate than the past few years,” Abbott Myers, chairman of Mississippi Land Bank, said at the organization’s annual meeting. While some analysts are warning of a sharp retreat in land prices, he says, “I don’t foresee another farm land bubble like the one that occurred in the 1980s, when there was a total collapse in values.” ABBOTT MYERS, left, Mississippi Land Bank chairman and Dundee, Miss. producer, and Craig Shideler, right, the organization’s executive vice president, welcomed 91-year old David Harold Prichard, Booneville, Miss. Prichard served on the organization’s board for many years and was recently honored by the national Future Farmers of America organization as the organization’s oldest living national officer and for his contributions to the FFA Foundation. He served as national FFA president in 1940. As “bumps in the road” occur in the farm economy, “farm land prices will reflect that,” Abbot Myers, chairman of the board of the Mississippi Land Bank, said at the organization’s annual meeting. But, he says, while some analysts are warning of a sharp retreat in land prices, “I don’t foresee another farm land bubble like the one that occurred in the 1980s, when there was a total collapse in values. “Some people feel prices are too high right now; others say prices will keep steadily going up, but at a slower rate than the past few years. Everybody’s got a prediction. My answer: They’ll go up and they’ll go down — land prices will correct themselves.” Grain prices and livestock production and the profits they produce are key factors that affect farm land demand and prices, Myers says. “We saw what happened in the Midwest last year when they didn’t make a normal corn and soybean crop. Prices shot up. Now those prices are going down — one analyst has said he can make a very good case for $4 corn this fall — and beef and dairy prices are coming up. “It’s going to be a wild year, and a lot will depend on the weather, which we of course can’t control.” Land rents and production both affect farm land prices, Myers says. “When the production of the land and the renting of the land get out of kilter, something’s going to happen, and price can go down.” Many land purchases in the last year or two have been by non-agricultural buyers, he says, and “by farmers who’ve either paid cash or paid down a significant amount of cash — they’re not borrowing a lot of money for these purchases. I think this is going to help keep prices from falling the way they did in the 1980s. There may be a correction in farm land prices, but I don’t think it will be a bursting bubble.” Action, or inaction, of the government also is an influence on farm land prices, Myers says. “We still don’t have a new farm bill; there has been a lot of playing politics and not much accomplished. We in agriculture don’t have the votes and influence in Washington that we once had, and the basic support we’ve had for farm bills in the past may no longer be there. “All bankers like to have support and stability in agriculture, but I don’t see that happening in the future. I think we will be more and more dependent on crop insurance. As soon as they make the big payout in the Midwest for last year’s corn crop, politicians are going to say, ‘This shows how effective crop insurance is,’ and that’s the way things will go.” Continue reading
