Farm bankers across the Midwest and Plains say that the persistent slump in crop and livestock prices pulled down farmland prices, with further declines expected through spring. The Chicago Federal Reserve Bank said land values fell by 4 percent in its region during 2015, matching the decline of 2014. It was the first back-to-back decline in land values since the agricultural recession of the mid-1980s. In the Plains, non-irrigated farmland values fell by 4 percent during October, November and December, said the Kansas City Federal Reserve.
“Reduced income pushed cropland values lower and developments in cattle markets halted growth in ranchland values. In addition, lower farm income trimmed cash rents somewhat and was expected to continue to pressure agricultural credit conditions in the coming months,” said the Kansas City bank. “Looking ahead, bankers generally indicated they expect further moderation of both farmland values and cash rents alongside relatively low prices for agricultural commodities and low farm income.”
Loan repayment rates softened while demand for loans was strong during the final months of 2015, said the Kansas City Fed, yet delinquency rates remained low.
In the Chicago district, “given reports of sub-par cash flows and too much spending on farm operations,” ag bankers projected that 2 percent of their farm loan customers were not likely to qualify for new operating credit this year, compared to1.5 percent in 2015. Four out of 10 banks tightened credit standards in late 2015. Half of those said they require larger amounts of collateral for non-real-estate loans.
Some 59 percent of bankers surveyed by the Chicago Fed said they expected land values to decline during the first quarter of this year and spending on land, buildings, equipment and vehicles would contract as well. “So, no improvements in the short-term prospects were anticipated by the survey respondents; they noted that controlling costs and utilizing risk-management tools would be critical to the health of farms in the coming year,” wrote bank economist David Oppedahl.
Earlier this week, USDA forecast farm income would drop by 2-3 percent this year, to the lowest level since 2002. Large subsidy payments by the government would offset a decline in crop and livestock receipts, said USDA, which projects a 1 percent drop nationwide in farmland values this year.