(Agrimoney) – Farmland values in the heart of the US Midwest fell in 2014 for the first time in 28 years, depressed by weak crop prices, according to a central bank report which forecast further declines in prices ahead.
The value of “good” farmland in states including Illinois, Indiana and Iowa, at the heart of US corn-and-soybean growing country, fell by 3% last year, the Federal Reserve’s Chicago bank said.
The decline, the first for a calendar year since 1986, was attributed to the dent to farm incomes from weaker crop values, following record US corn and soybean harvests last year.
“Lower corn and soybean prices have been primary factors contributing to the drop in farmland values,” the Chicago Fed said.
The weaker crop market conditions had more than offset improvements in the livestock sector – where “buoyant returns”, reflecting in part lower grain prices, had appeared to give “some lift to farmland values” late last year.
Further declines ahead
Further price falls appear on the cards, with half of lenders surveyed by the bank forecasting further declines, compared with only 1% expecting a rebound.
“District farmland values seem to be headed lower,” Chicago Fed senior business economist David Oppedahl said.
The last time Midwest land prices fell in a calendar year, the correction lasted for three years, from 1984-86 – a period during which values plunged some 40%.
In Iowa, the fall was by nearly one-half.
‘Simply drift lower’
However, the bank cast doubt on ideas of a repeat of the 1980s’ price tumble, which came at a time of rising interest rates and substantial pressure on farm balance sheets.
This time, “agricultural credit conditions indicated only modest stress in the sector, and the vast majority of farm operations are expected to have no trouble qualifying for operating credit in 2015,” Mr Oppedahl said.
“Large numbers of forced sales of farmland are unlikely to occur in 2015.
“By avoiding such a scenario, farmland values should simply drift lower over the coming months.”
Iowa leads decline
As in the mid-1980s correction, values of Iowa land were particularly weak in 2014, falling by 7% – notching up a second successive calendar year of decline.
Iowa, historically the biggest corn and soybean producing state, did not enjoy last year the same near-ideal growing conditions seen in some other Midwest areas, and indeed came within 18,000 bushels of losing to Illinois the title of biggest corn grower.
Iowa yields were, unusually, below those of Illinois and Indiana in both 2013 and 2014.
By contrast, land prices kept growing last year in Wisconsin, a more livestock-focused state.
