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Brakes Being Applied To Rapid Rise In Farmland Values?
August 28, 2013 8:30 am • By Jane Fyksen Crops Editor Is the party coming to an end? That is the question raised by the Federal Reserve Bank of Chicago’s August farmland values and credit conditions report. Even though for second-quarter 2013, “good” farmland was up 17 percent from a year ago in the Seventh District, which includes three-fourths of Wisconsin, ag land values registered no gain in the second quarter relative to the first quarter this year, according to 211 ag bankers in the district. “The last time there was no quarterly increase in agricultural land values was in 2009,” says David Oppedahl, business economist with the Chicago Reserve. “Generally, the stellar year-over-year gains in farmland values across the five district states masked the comparative weakness of the quarterly results.” Further, Oppedahl reports that the percentage of ag bankers in this quarterly survey anticipating farmland values to fall during the present third quarter (July-September) is the same as those predicting land value to rise (both 7 percent). Eighty-six percent think farmland values will be stable in the third quarter. As noted, the Seventh District’s survey of ag bankers includes three-quarters of the state, generally all but the northwest section. From July 1, 2012, to July 1, 2013, they saw land values in Wisconsin up 7 percent, 6 percent in the more southeasterly counties, 11 percent in the more central portion of the state and 16 percent in the southwest, which is generally included with northeast Iowa in the survey; however, in the second quarter (April 1 to July 1, 2013), ag bankers say the value of “good” farmland in Wisconsin only rose 1 percent. That is based on a 6 percent rise across the state’s midsection, but a 3 percent drop in southeastern and eastern counties up along Lake Michigan. Southwestern counties, lumped in with northeast Iowa, saw a 2 percent second-quarter hike. Year-to-year changes and second-quarter 2013 changes, respectively, for other district states are as follows Illinois (the northern two-thirds), up 17 percent, down 1 percent; Indiana (up 21 percent, up 5 percent); Iowa, up 18 percent, unchanged in recent months; and Michigan, up 18 percent, down 7 percent. Oppedahl highlights the second-quarter pause in what is been a rapid rise in farmland values in recent years, and he points to the quarterly decreases in ag land values in Illinois and Michigan. While farmland values on a year-over-year basis “still appear to be soaring,” he notes that “changes in farmland values on a quarterly basis may be presaging shifts in the year-over-year pattern in the latter half of 2013.” The year-over-year increase in farmland values for the second quarter was larger than that for the previous one – 17 percent versus 15 percent reported in June. Ag bankers, like producers, are seeing key crop prices starting to slide, and wondering if land values With larger harvests anticipated this fall to bolster crop supplies, USDA estimates price intervals for the 2013-2014 crop-year of $4.50 to $5.30 a bushel for corn and $10.35 to $12.35 for soybeans. “Given these price ranges, the district’s 2013 corn and soybean harvests would be lower in value compared with its 2012 harvests,” notes Oppedahl. While some of the lost revenue will be recouped via crop insurance payments for prevented plantings and revenue protection policies, this Federal Reserve economist cautions that “the anticipation of lower crop revenues – especially combined with potentially rising interest rates on farm loans – portended softness in future farmland values.” As for credit conditions in the district, he reports they were generally better in the second quarter than a year earlier. Ag bankers had more funds for lending, and repayments rates for non-real-estate farm loans were higher than a year ago. Ninety-four percent of responding bankers said their ag loan portfolios were having no significant repayment problems during April, May and June, and they perceived non-real-estate loan demand for the period to be below what it was during the same three months last year. Interest rates on farm loans rose in the second quarter for the first time since early 2011. That followed record-low rates in the previous quarter. As of July 1, district averages for interest rates on new farm operating loans and real estate loans were 4.94 percent and 4.65 percent, respectively, both lower than a year ago. “The uptick in interest rates on farm loans may mark an important shift in the district’s agricultural credit conditions,” Oppedahl warns. “Demand for non-real-estate loans relative to a year ago fell during the second quarter of 2013, but not as sharply as it did during the first quarter,” says Oppedahl. “With 17 percent of survey respondents reporting higher demand for non-real-estate loans compared with a year ago, and 30 percent reporting lower, the index of loan demand was 97 for the second quarter of 2013 – higher than its reading of 67 for the first quarter. Moreover, in the first six months of 2013, the amount of farm operating loans generated by banks was lower-than-typical, whereas the amount of farm mortgages was higher than typical.” Given such low demand for non-real-estate farm loans, it’s “not surprising,” he notes, that the district’s average loan-to-deposit ratio remained quite low at 64.5 percent – “well below the ratio desired by responding bankers (77.2 percent).” Bankers anticipate operating loans and livestock loans to shrink in this third quarter, relative to July-September last year; however, falling crop prices should bring some relief to livestock producers, who have suffered in recent years with high feed prices, Oppedahl says. Continue reading
US Farmland Prices Keep On Rising
http://www.ft.com/cms/s/0/caa6bdd0-05c0-11e3-ad01-00144feab7de.html#ixzz2cP3tHszb August 15, 2013 By Gregory Meyer in New York Farmland values in a critical US agricultural region continued their rise in spite of weakening crop prices, as low interest rates and a dearth of investment alternatives spur wealthy farmers to amass more acreage, Federal Reserve economists have reported. Irrigated land in states such as Kansas and Nebraska gained 25.2 per cent year on year in the quarter ended June 30, the ninth straight quarter in which annual price rises have topped 20 per cent, the Federal Reserve Bank of Kansas City said in a survey of bankers published on Thursday. The sharp increase in the face of an expected decline in incomes will further stoke debate about whether land prices reflect fundamental farm economics or have been artificially inflated by low interest rates. In a separate survey of a district that includes Illinois and Indiana, the Federal Reserve Bank of Chicago reported farmland values rose 17 per cent from a year before. But second quarter values were unchanged from the first quarter, in the first flat quarterly results since 2009. The lion’s share of US farmland is still bought and sold by farmers, but it has also attracted large institutional investors such as TIAA-CREF and pension funds. Grain prices fell in the survey period, with hard winter wheat futures down 8 per cent in the year to June 30. Questions about the direction of US biofuels policy also weigh on investors’ minds, said Philippe de Lapérouse of consultant HighQuest Partners. The retreat in crop prices is expected to hit US farm revenues. Equipment maker John Deere forecasts a 6 per cent drop from a record $402.1bn last year to $379.7bn in 2014. The Kansas City Fed said: “Bankers expected income to drop further in the next few months due to the possibility of sharply lower corn and soyabean prices at harvest. Despite lower farm income and expectations of additional declines, farmland values surged further during the second quarter.” The survey found that farmers’ overall wealth levels, as well as “low interest rates and a lack of alternative investment options”, were more important factors behind the boom than expected incomes. To date, concerns about a looming bubble have been answered with the facts that farmers’ debts are low relative to their assets, speculators are in the minority and grain prices are still relatively high. Meanwhile, the average interest rate on farm real estate loans rose slightly to 5.38 per cent in the quarter, its first increase in more than two years in the Kansas City district. “Farm loan repayment rates softened in the second quarter and were expected to weaken in coming months with lower farm income,” the Kansas City Fed said. The Chicago Fed said most bankers envision stable land prices. “The anticipation of lower crop revenues – especially when combined with potentially rising interest rates on farm loans – portended softness in future farmland values,” its survey said. Nationally, farmland has gained 9.4 per cent on average from 2012, the US Department of Agriculture said earlier this month. Continue reading
Grain Futures Mixed Ahead Of USDA Supply Report
Aug 12, 2013 Investing.com Investing.com – U.S. grain futures were mixed to lower on Monday, as traders looked ahead to a closely-watched monthly U.S. supply and demand report due later in the session, which is expected to show record production prospects for U.S. corn and soybeans this season. Market players also continued to monitor weather conditions across grain-growing regions in the U.S. Midwest and in the Great Plains. On the Chicago Mercantile Exchange, corn futures for September delivery traded at USD4.6363 a bushel, down 0.4%. September corn futures hit a session low of USD4.6188 a bushel earlier in the day, the weakest level since October 4, 2010. The September corn contract settled down 1.65% at USD4.6560 a bushel on Friday as improving U.S. weather and crop prospects in the U.S. Midwest and Great Plains-region drove prices lower. Weather forecasting models continued to point to near-perfect temperatures across most parts of the U.S. Midwest during the next few days, easing concerns over potential U.S. crop damage. The USDA said nearly 64% of the U.S. corn crop was rated in ‘good’ to ‘excellent’ condition as of last week, significantly higher than the 23% recorded in the same week a year earlier. Nearly 11% of the corn crop was in ‘poor’ to ‘very poor’ condition, compared to 50% recorded in the same week a year earlier. Meanwhile, wheat for September delivery traded at USD6.3200 a bushel, down 0.2%. Prices of the grain hit a daily low of USD6.3063 a bushel earlier in the session, the weakest level since June 18, 2012. The September contract settled down 1.2% at USD6.3340 a bushel on Friday. The USDA said that nearly 87% of the winter-wheat crop was harvested as of last week, up from 81% a week earlier and above the five-year average of 86% for this time of year. Elsewhere on the CBOT, soybeans futures for September delivery traded at USD12.2775 a bushel, up 0.8%. The September contract settled down 0.75% at USD12.1840 a bushel on Friday. Prices of the oilseed remained supported amid indications of strong demand for U.S. supplies from China. China is the world’s largest soybean consumer, accounting for nearly 60% of global trade of the grain. Prices of the oilseed fell to USD11.8687 a bushel on August 5, the weakest level since January 31, 2012 amid improving U.S. weather and crop prospects in the U.S. Midwest and Great Plains-region. According to the U.S. Department of Agriculture, approximately 79% of the U.S. soy crop bloomed as of last week, up from 65% in the preceding week. The report also showed that nearly 64% of the soy crop was in ‘good’ to ‘excellent’ condition as of last week, significantly higher than the 29% recorded in the same week a year earlier. Corn is the biggest U.S. crop, followed by soybeans, government figures show. Wheat was fourth, behind hay. Continue reading
