By Christine Stebbins
Feb 14 Farmland values in the U.S. central and
southern Plains held steady in the fourth quarter from the
previous period, but the market tone is soft, and bankers expect
weakness in the coming months, the Federal Reserve Bank of
Kansas City said on Friday.
"Cropland values increased only modestly in the fourth
quarter compared with the rapid pace of the past few years," the
Kansas City Fed said in its quarterly survey of 226 farm
"Values rose only about 1 percent in the fourth quarter of
2013 despite fewer farms being for sale. Ranchland values
actually dipped below third-quarter levels."
Even though farmland values remained higher than in 2012,
the year-over-year gains of 7 percent to 9 percent was the
lowest in more than three years, the bank said.
The bank's district, which includes Nebraska, Kansas,
Oklahoma, Colorado and parts of Missouri, is the leading
production area for bread wheat and a major producer of corn,
beef, oilseeds and other farm commodities.
"This report was probably a bigger one relative to others
because most of the buying and selling activity tends to happen
in the fourth quarter," Nathan Kauffman, an economist with the
Kansas City Fed, told Reuters.
"The signs that things seem to flatten out or slow down a
little bit in the fourth quarter is maybe a bit telling."
The survey results were similar to those issued for the
Midwest on Thursday by the Federal Reserve Banks of Chicago and
St Louis. But the outlook for farm returns in the Plains, where
there is greater dependence on irrigation and vulnerability to
drought, looks less rosy in 2014 and may have weighed on
"A growing number of district bankers felt that farmland
values had topped out and could retreat from current highs," the
Kansas City Fed said.
Government economists track farmland values in the central
United States as a gauge of the U.S. economy and health of the
In the last five years, both crop and farmland prices have
set records as the boom in biofuels and food exports fed demand.
But the sharp drop in last-half 2013 grain prices ahead of the
record corn harvest has had bankers fretting that farmland
prices could also plunge.
Such a bubble popped in the 1980s, causing massive farm
failures. Most farmers' loans are collateralized by land.
The Chicago and St. Louis Fed surveys, reflecting the annual
fourth-quarter Corn Belt land auctions and rent negotiations,
relieved some of those worries.
The survey results from more than 200 bankers showed
fourth-quarter cropland values edging higher, generally by 3
percent to 5 percent in the central Midwest. But values in the
top corn state, drought-hit Iowa, actually fell for the quarter
and the year.
Nevertheless, most bankers thought Corn Belt land values
would stay steady for the next three months but might get
pressured again from an outlook for lower grain prices after
spring planting begins.
In general, Corn Belt grain farm balance sheets are in fine
shape after five years of record income and as interest rates
remain near record lows.
PLAINS UNDER PRESSURE
The tone in the dryland and irrigated Plains region was
distinctly less optimistic, according to the KC Fed survey.
At the end of 2012, only 1 percent of the bankers surveyed
expected cropland values to decline, compared with 16 percent at
the end of 2013.
"The slowdown in farmland value gains and increases in cash
rent occurred amid expectations of weaker farm income," the
report said. "Agricultural bankers reported farm income fell
short of year-ago levels for the third straight quarter,
primarily due to lower corn prices."
Because of weaker farm income, loan renewals increased, and
new operating loan demand held at a five-year high as farmers
prepared for spring planting.
Some bankers also were concerned that low crop prices and
high production costs could squeeze farmers' profit margins and
affect the performance of their agricultural loans.
"Input prices and cash rents are not coming down," one
northeastern Nebraska banker said. "2014 could be a painful year