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US cropland values drop, but ranchland holds firm

Pastureland, for years the laggard of the US land market, is returning to prominence thanks to the improved profitability of livestock operations compared with arable peers, protecting ranches from the price falls seen in cropland.

The Federal Reserve, the US central bank, said that the farmland market in the first three months of 2014 extended a slowdown which set in last year, with year-on-year growth in the south-central Plains states such as Kansas, Nebraska and Oklahoma falling to 4.3%, the weakest in four years

In key central Corn Belt states, including Iowa, the top corn and soybean growing state, values fell 1% quarter on quarter, the first decline in five years.

Prices in Indiana and Illinois dropped by 4% - a pace of decline not exceeded in either state since 1985, during the land market crash fuelled by high interest rates.

Ranchland vs cropland

However, the overall falls disguised a two-tier market, with values of cropping land underperforming pastureland – a reflection of the divergent impact of lower crop prices on the arable and livestock sectors.

In the south-central Plains, for instance, while values of non-irrigated land fell by 1.4% quarter on quarter, "strong demand for high-quality grazing pastures bolstered ranchland values," which rose by 2.6%, the Fed said.

"Recent movements in farmland values [in the region] have echoed farm income trends.

 "High cattle and hog prices, coupled with lower feed costs, improved profit margins for cattle and hog operators, in turn bolstering farm income for the livestock sector and supporting a slight rise in ranchland values."

The land market in Oklahoma, where growers planted some 10m acres of crops last year, far outperformed those in Kansas and Nebraska, where 20m acres or more was sown.

More to come?

In the Corn Belt, the Fed's Chicago bank highlighted that "falling feed costs, reflecting falling grain prices, boosted livestock profits, helping support farmland values in some parts… where the mix of agriculture includes a significant livestock component".

And further south, the Fed's St Louis bank, which monitors an area including Arkansas and parts of the likes of Missouri, Kentucky and Mississippi, also reported an outperforming ranchland market.

The St Louis Fed expected that trend to continue, with lenders it surveyed foreseeing a drop in the market for quality land, but evenly split on prospects for pastureland.

The Kansas City Fed, covering the south-central Plains, said that while lenders were expecting a further drop in cropland values in the current quarter, they "felt that ranchland values could strengthen further".

Cinderella land class

Outperformance for ranchland would represent a sharp turnaround from the sector's recent record.

Over the last five years, values of non-irrigated cropping land have near-doubled, and those for irrigated land risen by 117%, analysis of Kansas City Fed data shows.

Values of ranchland have risen by 62%, with the elevated crop prices, besides generous crop insurance plans, which have boosted arable growers' prosperity a setback to livestock producers requiring grain to feed their livestock.

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