By Christine Stebbins
May 15 Farmland values in the U.S. Plains states
rose 20 percent in the first quarter from a year earlier, with
acreage commanding record prices because of red-hot demand for
cropland in the world's biggest food-exporting nation, the
Federal Reserve Bank of Kansas City said on Wednesday.
The rise marked the third straight year of double-digit
annual increases, setting a survey record, the bank said, but
the rate of gains moderated from the fourth quarter, with slower
growth in farm income.
"There was a modest slowdown in farmland value growth in the
first quarter," Nathan Kauffman, the bank's economist in charge
of the survey, said in an interview. "At this point we haven't
seen anything to suggest there is going to be a rapid decline.
How this plays out going into 2014 is going to be the bigger
question if farm incomes fall significantly from 2013 levels."
The Kansas City Fed's quarterly survey of 223 regional
bankers is a closely watched gauge of the U.S. farm economy. The
district stretches across the major wheat, corn and cattle
states of Colorado, Kansas, Nebraska, Oklahoma and Wyoming,
along with parts of New Mexico and Missouri. So it is seen as a
barometer of both grain and livestock trends.
"The farm economy is strong. Our bankers have expressed that
loan demand is still soft because the economy is so strong,"
Skyrocketing land values, the basic collateral for most
farmer loans, have stirred fears of the possibility of a ruinous
bubble the last few years like the one in the 1980s when
overleveraged farmers lost their land as interest rates jumped.
But farmers, especially grain producers, are in a much
stronger financial position now than 30 years ago after several
years of record exports of and prices for their crops.
"Farmers have had more cash the last couple years than
usual. So a lot of farmers have been using cash to pay down
debt," Kauffman said. "There are certain groups that have
limited cash," he added, such as livestock producers who have
seen a prolonged squeeze from high corn and feed prices.
But the main holders of farmland - grain farmers - continue
to enjoy profitable returns, drought or not, due to protections
like crop insurance, he said.
"Most farmers have crop insurance and 2013 should be
relatively strong for most farmers because they are more or less
guaranteed a profit from crop insurance," Kauffman said.
SLOWER PACE OF PRICE GAINS
In the Plains, irrigated farmland attracted the most
interest in the first quarter. Values rose 21.5 percent from a
year earlier, boosted by lingering concerns after the worst
drought to hit the United States since the 1930s, according to
the Kansas City Fed survey. Plains ranchland values jumped 14
However, compared with the fourth quarter, the frantic pace
of farmland price gains moderated, the Fed said.
Non-irrigated cropland and irrigated cropland rose 7.7
percent and 9.0 percent, respectively, from the fourth quarter
of 2011 to the first quarter of 2012. By comparison,
non-irrigated cropland and irrigated cropland rose 3.4 percent
and 2.9 percent, respectively, between 2012's fourth quarter and
the first quarter of this year.
"Cropland value gains slowed compared with last year due to
falling crop prices and rising input costs," the bank said.
(U.S. Plains farmland values:)
The western half of Missouri posted the biggest jump in land
values, with non-irrigated farmland prices up 28 percent from a
year earlier, the Kansas City Fed said.
Bankers in the Kansas City Fed district said record land
prices raised debt obligations for young and beginning farmers
and producers expanding their operations.
"Producers appeared to be taking advantage of record low
interest rates to finance capital purchases but were using cash
to cover operating costs, limiting overall operating loan
demand," the bank said.
Loan repayment rates remained higher than in 2012, but
bankers expected the pace of improvement to slow due to rising
production costs and forecasts for lower farm income.
"Some bankers expressed concern that a downturn in farm
income or land values could impact the ability of more leveraged
operations to meet debt obligations, particularly for borrowers
using land as collateral on other loans," the Kansas City bank
Also on Wednesday, the Federal Bank of St. Louis issued its
first-quarter survey for farmland in the southern Midwest and
Mid-South, a region that includes eastern Missouri, Arkansas,
southern parts of Illinois and Indiana, western sections of
Kentucky and Tennessee, and parts of northern Mississippi.
Bankers said farmland values fell 2 percent in the district
from the fourth quarter, but the survey provided no year-earlier
comparisons because this was only the bank's fourth quarterly
However, many bankers also thought land values and cash
rents would continue to rise in the current quarter, if at a
tempered pace, the St. Louis Fed report said.
"In the District as a whole, 51 percent of respondents
indicated that the financial condition of crop producers
improved either modestly or significantly from one year
ago. In addition, another 31 percent of respondents indicated no
change in the financial condition of crop producers," the St
Louis Fed said. "Only 2 percent of bankers identified a decline
in land values as the most significant risk in 2013."
The Chicago Federal Reserve, which surveys bankers across
the heart of the Midwest Corn Belt, said it will release its
banker survey on Thursday.