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Fed Survey Confirms Farmland Plateau
Jeff Caldwell 11/14/2013 @ 3:39pmMultimedia Editor for Agriculture.com and Successful Farming magazine. Though the numbers show a year-over-year double-digit gain in farmland values as of October in the bulk of the Corn Belt, that trend effectively ended at the start of the third quarter, adding evidence to growing sentiment about the reality of a leveling-off and possible downturn in farmland values in the coming months. Farmland was worth 14% this October than it was the same time a year ago, though all but 1% of that gain came in the first 3/4 of the year. The trend definitely leveled off, according to data released by the Federal Reserve Bank of Chicago this week. That’s in line with other recent outlooks that paint a less bullish picture of the Midwest farmland market in the months ahead. “There was a 1% increase in ‘good’ agricultural land values in the third quarter relative to the second quarter of 2013, according to the 195 agricultural bankers that provided responses for the October 1 survey,” according to a report by Fed senior business economist David Oppendahl. “While district farmland values increased on the whole in the third quarter of 2013, this upward trend was not expected to continue: The respondents’ expectations leaned toward a decrease in farmland values in the fourth quarter of 2013, as only 4% anticipated an increase and 21% forecasted a decrease (75% foresaw stable farmland values).” The reversal in land value looks sustainable in the next few months, Fed economists say. That’s mostly because of grain prices. This fall’s corn and soybean crops, despite abnormally dry conditions during much fo the growing season, were larger than most expectations, and that’s fueled lower prices. And, with prices already flirting with breakeven levels, land prices — a critical input cost for Corn Belt crops — will likely continue to trickle lower to keep prices within at least a range of breakeven. “For the 5 District states (Iowa, Wisconsin, Illinois, Indiana and Michigan), soybean production was projected by the USDA to rise 8.5% in 2013 from its 2012 level. Even with the reoccurrence of drought in parts of the District, the third-largest corn harvest and a soybean harvest just outside the top 10 filled storage bins across the Midwest,” Oppendahl says. “Better-than-expected crop yields for the District may have contributed to the momentum of its rising farmland values; however, in areas affected by back-to-back droughts, the loss of revenue from declines in crop prices and yields may have constrained farmland value gains.” http://www.agriculture.com/videos/ Continue reading
UPDATE 2-U.S. Midwest Farmland Prices Soften In Q3-Chicago Fed
Thu Nov 14, 2013 By Christine Stebbins Nov 14 (Reuters) – Farmland prices in the heart of the U.S. Corn Belt softened in the third quarter from the prior three months and overall values in the top corn-producing state of Iowa eased, tracking grain prices lower, the Federal Reserve Bank of Chicago said on Thursday. For the district overall – which stretches across Iowa, northern Illinois and Indiana, as well as Wisconsin and Michigan – farmland prices were up 1 percent in the July-September quarter from the previous quarter and up 14 percent year-on-year, according to the Fed’s quarterly survey of farm bankers. “While district farmland values increased on the whole in the third quarter of 2013, this upward trend was not expected to continue: the respondents’ expectations leaned toward a decrease in farmland values in the fourth quarter of 2013, as only 4 percent anticipated an increase and 21 percent forecasted a decrease and 75 percent foresaw stable farmland values,” the Fed said. “That’s a change,” David Oppedahl, a Chicago Fed senior economist and author of the survey said. “Also there could be some credit conditions shift as we may have a larger volume of operating loans in the coming quarter than a year ago.” The Kansas City Federal Reserve will release its farmland survey on Friday U.S. central bank policymakers, farm bankers, sellers of seed and feed and equipment to farmers and the farmers themselves have been watching farmland auctions in the Midwest carefully this autumn to pick up any pronounced weakness in the market after the sharp decrease in grain prices from last year’s record highs. Farmland is the basic collateral for farmer loans and economists have expressed concern for months that a farmland “bubble” may pop as it did in the 1980s, hurting what has been one of the healthiest sectors of the U.S. economy. The Chicago Fed survey, which sorted responses from 195 district farm bankers, confirmed that as harvest got under way and the autumn auction season began, the prices for prime crop land were mostly steady from three months earlier. Illinois and Iowa, for instance, which produce about one-third of all U.S. corn and soybeans, saw prices gain 1 percent and fall 1 percent from the prior three months, the Fed data showed. “After leading the district in terms of year-over-year gains in farmland values from the first quarter of 2010 until earlier this year, Iowa felt the impact of renewed drought conditions and had the lowest year-over-year increase in agricultural land values among district states, as well as the only quarterly decrease,” the Fed said. A positive sign was that the farmland values held up so well in the third quarter despite the drop in grain prices. The Fed said corn prices averaged $6.13 per bushel in the third quarter – down 12 percent from the previous quarter and down 15 percent from a year ago. Soybeans averaged $14.23, down 3.8 percent from the previous quarter and off 7 percent from 2012. “Better-than-expected crop yields for the district may have contributed to the momentum of its rising farmland values; however, in areas affected by back-to-back droughts, the loss of revenue from declines in crop prices and yields may have constrained farmland value gains,” the Fed said. The bank noted that the U.S. Department of Agriculture predicts that the five district states’ harvest of corn will be 38 percent higher than the drought-reduced production of 2012. District soybean production was projected to rise 8.5 percent in 2013, boosting farmer revenues despite the lower prices. FARM BANK CONDITIONS IMPROVE The softening but steadiness of the red-hot farmland market carried over to farm bank credit conditions. “In the third quarter of 2013, the District’s agricultural credit conditions saw improvement relative to a year ago, although it was generally narrower than in the previous quarters of this year and the past few years,” the Fed said, adding that bankers expected agricultural credit conditions to shift in the fourth quarter. Bankers surveyed also expected loan repayment to worsen, with 17 percent forecasting the volume of farm loan repayments to rise in the next three to six months relative to a year ago and 26 percent expecting this volume to fall, the Fed said. However, significantly, “Forced sales or liquidations of farm assets among financially stressed farmers should decline in the next three to six months relative to a year earlier, except in Wisconsin,” the Fed said. That outlook for less liquidation was tied, ironically, to the fall in grain prices which, for the first time in years, was suddenly brightening business for livestock and dairy producers. Grain farmers have been cutting debt sharply in recent boom years. USDA currently estimates in prices for corn at $4.10 to $4.90 and for soy $11.15 to $13.15 for 2013/14 crop year. “Thirty-seven percent of the respondents expected higher net earnings for cattle and hog operations over the next three to six months relative to a year ago,” the Fed said. Prospects for dairy producers were not as rosy since milk prices in October were off 6 percent from October 2012. Continue reading
Auctions May Help Define Direction Of Illinois Farmland Prices
Murray Wise Associates | October 18, 2013 After spending much of the year on the biggest set of auctions in the company’s history, the Murray Wise Associates team now faces a new challenge, with a lineup of Illinois sales that may give a hint at what’s ahead for farmland prices. The company will conduct two Illinois farmland auctions in a single day Thursday, Nov. 7, with two other auctions following close behind in Clay and Crawford counties. “The first few sales at the end of harvest usually tell us a good bit, and this year, it will be especially interesting,” said Joe Bubon, executive vice president of the auction company. “The Chicago Fed recently reported that while Illinois farmland prices were up 17 percent for the year ending July 1, they were actually down a percentage point for the quarter.” But, Bubon added, the volume for that quarter was low. “We’ll get a clearer picture now as to whether that was a blip or whether a flatter market will establish itself,” he said. Murray Wise Associates hopes to build on the momentum from its $75 million set of auctions of vegetable land, packing plants and other assets – primarily in Florida and Virginia – in the bankruptcy of tomato packing giant East Coast Brokers and Packers. “That was a unique opportunity for us, and kept us busy through the summer months. But the timing was good because it occurred during a lull in the Midwest, and we set numerous company records with it. Now, we’re getting back to our bread and butter, with an opportunity to gauge the market for Midwestern land,” he said. In the first of the two Nov. 7 auctions, bidding will begin at 10 a.m. at the Royal Community Center for the sale of three tracts in Ogden Township. That afternoon, the auction team will move to the Franks Center in Philo for the sale of 200 acres in Crittenden Township. “Both of these are very productive farms with good soils, and I think we will see some interest by investors as well as area farmers. The Clay and Crawford properties both have substantial tracts of contiguous farmland and recreational land. It will be telling to see if these sell to smaller buyers or what role the larger institutional buyers might play,” said Bubon. “For quite a while, there has been a shortage of available farmland relative to demand, so this will be a very nice opportunity for someone to add to existing holdings.” Continue reading
