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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 →