Bankers have turned positive on farmland prices in the US
cattle and cotton heartland for the first time in two years, in the latest of a
series of signals that, at least, the worst may be over the sector's decline.
The proportion of lenders in the southern states of Texas,
Louisiana and New Mexico expecting land price rises exceeded those foreseeing
falls in values for the first time since the April-to-June quarter of 2015, according
to a survey by the Federal Reserve, the US central bank.
"After seven consecutive negative quarters, the anticipated
trend in the farmland values index turned positive" in the quarter which ended
on Friday, the Federal Reserve said.
"Respondents expect farmland values to trend up in the
And the extent of optimism is the highest in nearly three
years, with the gap between bullish lenders over bearish ones, at 7.0
percentage points, the highest since autumn 2014.
In fact, lender sentiment in the region has somewhat lagged
the movement in actual values, with prices of irrigated land and ranchland
putting in a second successive period of quarter-on-quarter recovery in the
April-to-June period, albeit of a modest 0.4% and 0.9% respectively.
Dryland values rose by 2.6%, but after a decline totalling 5.2%
over the previous two quarters.
And there have been other signs of the US farmland market at
least slowing its decline.
A monthly survey by Creighton University of values in major
ag states, including the likes of Illinois, Indiana and Kansas, came in with an
index figure of 40.0 for June.
While still below the 50.0 level which indicates a neutral
market, the Creighton survey reading was the highest but one in nearly three
Ernis Goss, the economics professor in charge of the survey,
flagged the role of "stabilising and slightly improving farm commodity prices"
in boosting the rural US economy.
"Though grain prices remain below breakeven for most
farmers, recent improvements in cattle and hog price" have boosted activity.
Although bankers surveyed by the university forecast, on
average, a 3.1% drop in US farmland prices over the next 12 months, that
represented a "significant improvement" from a previous survey, when a drop of
7% was expected.
In another potential sign of improvement in the farm
economy, the Federal Reserve survey showed that "the rate of loan repayment
stabilised, after declining for two years".
Cotton down, wheat up
Texas, at the centre of the Federal Reserve survey, is the
top US beef producing state, and the biggest grower of cotton too.
The Fed survey, undertaken in the second week of June, came
ahead of a retreat in cotton prices and in the early days of a pullback in
feeder cattle futures too.
Still, it also preceded a jump in values of winter wheat, of
which the state is also a major grower, and which have soared some 18% since
the survey data for the Kansas City-traded hard red winter wheat produced by
Indeed, the fed noted wheat prices at, or below, breakeven
levels in many parts of the state for wheat producers – who are likely looking
at healthy gains at current market levels.