(Wall Street Journal) – Farmland values fell in parts of the Midwest in the third quarter, reflecting a downdraft in the agricultural sector driven by three years of lower crop prices, according to Federal Reserve reports on Thursday.
The average price of “quality” farmland in the St. Louis Fed’s district, which includes parts of Illinois, Indiana and Missouri, dropped 2.6% from a year earlier, as farm incomes weakened considerably, the Fed bank said.
In the Kansas City Fed’s district, which includes Kansas and Nebraska, irrigated-cropland values declined 1%, while the average price of nonirrigated land rose 0.4%, the bank said. Irrigated farmland depends on man-made water systems rather than rainfall.
In the Chicago Fed’s district, which includes Illinois and Iowa, prices for farmland remained largely the same in the third quarter compared with a year ago, and rose 1% versus the second quarter of this year, the bank said.
The reports largely underline a slowdown in the agricultural economy that has softened farmers’ demand for cropland after a yearslong run-up in prices. Both crop prices and land values rose sharply for much of the past decade, driven higher by drought and burgeoning demand for grain from ethanol producers and overseas buyers. That led flush farmers to bid up land values.
This autumn, however, farmers for the third straight year are harvesting bumper corn and soybean crops, further elevating global supplies and adding pressure to prices that have fallen by more than half since 2012.
Midwestern bankers surveyed by the Fed banks in both the St. Louis and Kansas City districts said farm income fell significantly in the third quarter, and many expect a continued cooling of land values in the current quarter as farmers adjust to leaner times.
“Because of some concern about the fall harvest and the recent dip in livestock prices, agricultural bankers have a rather dour view of farm income prospects in the fourth quarter of 2015,” the St. Louis Fed said in its report on Thursday.
The Chicago Fed said most Midwestern lenders it surveyed think farmland values will drop in the current quarter, implying that the lack of an overall decline in the third quarter “was merely a pause in a longer-term correction,” wrote David Oppedahl, senior business economist at the Chicago Fed, in Thursday’s report.
The report cited stable prices for corn in the third quarter, as well as a lack of available farms for sale as likely factors propping up land values in the Chicago region.
Agricultural land values in Iowa and Illinois, the two largest corn-producing states, both declined from a year earlier, though the losses were offset by higher prices in Wisconsin and Michigan.
Average ranchland values rose both in the St. Louis and Kansas City Fed’s district, though bankers in both regions expect prices for the land used to raise livestock to decline versus year-ago levels in the current quarter.
Both the Chicago and Kansas City Fed districts said financial conditions for farmers weakened in the third quarter, with loan repayment rates down and expected to decline further as the year wraps up. Mr. Oppedahl said an index of repayment rates for loans excluding real estate in the Chicago region could drop to the lowest level since 1999, while more farmers facing financial strain could be forced to hold farm sales or sell off assets in the next three to six months compared with year-ago levels.
“Land values have definitely been declining,” said Brandon Rutledge, 34 years old, who grows corn and soybeans and raises livestock in Le Roy, Ill.
Less farmland than normal is going on the market in Mr. Rutledge’s area because nearby land prices have dropped, he said.
The farmer added that he plans to drive a hard bargain with seed suppliers and apply less fertilizer to his cropland to cut costs and stay profitable for this year. Still, he said, “it’s going to be tight.”
