Ag bankers say slump in farmland values will continue this year
Weak farm income pulled down farmland values across the Midwest and much of the Plains as 2016 closed and ag bankers expect prices to slide again before the spring planting season, said Federal Reserve banks in Chicago, Kansas City and St. Louis. The Chicago Fed said land values have fallen for three years in a row in its five-state district in the heart of the Corn Belt.
In quarterly reports, the Kansas City and Chicago banks said the recent declines in land values are moderate compared to the plunges seen during the agricultural recession of the mid-1980s. In that period, land values in the Midwest plummeted by as much as 20 percent in a year, said the Chicago Fed. Values fell 3 percent in 2014 and 2015 and 1 percent last year in the Chicago district. Farmland is 80 percent or more of assets held by farmers so changes in real estate values affect an operator’s financial stature.
Annual percentage change in Seventh District farmland values
Forty percent of farm bankers surveyed by the Chicago Fed said they expect farmland values to decrease in their areas during the first quarter of this year while 60 percent expect them to stabilize.
A majority of bankers in the Kansas City Fed survey expected the downward trend in farm values — down by an average 6 percent for farmland and 7 percent for ranchland — to continue this year. “More specifically, a majority of bankers expected a decline of 6 percent to 10 percent in non-irrigated farmland values by year-end 2017,” said the regional Fed. The Kansas City district covers Oklahoma, Kansas, Nebraska, Colorado, Wyoming, northern New Mexico and western Missouri.
The decline in land prices and rental rates could help some producers as they try to balance expenses and income, said the Kansas City Fed. “Looking to 2017, bankers indicated that a decline in cash rents may provide some relief, but they still expect farm income to be subdued.”
The St. Louis Fed said quality farmland values fell 8 percent and pastureland 3.5 percent in the final quarter of 2016 compared to the same point a year earlier. “Most bankers expect further declines in the first quarter of 2017,” said the bank. The St. Louis district is the lower Midwest and the mid-Mississippi Valley.
But dryland crop land in the Dallas Federal Reserve district increased in value 3.2 percent in the final quarter of 2016. Some 86 percent of bankers responding to the Dallas Fed survey expected farmland values to hold steady from January through March. The Dallas Fed covers Texas and parts of Louisiana and New Mexico.