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US farmland price decline 'past the worst', central bankers say

Central bankers unveiled hopes that at least the worst was over for the US farmland market, despite continuing worries over farm incomes – and a cut in funds for ag lending in the Corn Belt for the first time since 2006.


The US Federal Reserve’s Chicago bank, which covers an area encompassing top Corn Belt growing states Illinois, Indiana and Iowa, said that regional land prices were unchanged for the July-to-September period, extending a period of flat performance.


“The district did not experience a year-over-year decrease or increase in its agricultural land values greater than 1% in the past four quarters,” Chicago Fed senior business economist David Oppedahl said, adding that “such relative stability in farmland values had not occurred… since 1970”.


Further south, the St Louis Fed, which covers states such as Arkansas and Mississippi, up to southern Corn Belt areas, said that values of “quality” farmland rose 1.1% - on a year-on-year basis – in the July-to-September period, while those of ranchland and pastureland gained 4%.


‘Longest since 1980s’


And while prices fell in the central Plains - particularly important as wheat growing and cattle ranching area - by 3% for non-irrigated cropland and 6% for irrigated plots, this represented a slowdown in the pace of decline, which was termed “modest” by the Fed’s Kansas City bank.


Indeed, the bank highlighted that the “duration of the recent downturn in cropland values has approached that of the 1980s”, the last time US farm prices suffered a notable recession, although “the magnitudes of recent [price] declines have yet to approach the magnitudes of the 1980s”.


Then the pace of year-on-year price decline topped 20% at its peak, in 1985.


Fund squeeze


The relative slowdown in the deterioration reading, drawn from surveys of lenders, came despite a continued deterioration in farm incomes, a trend which the St Louis Fed said had now continued unbroken since early 2014, and which the Kansas City Fed had begun in its district in 2013.


“A majority of bankers reported that farm income was lower than a year ago, but that the pace of the decline was less significant than recent quarters,” the Kansas City Fed said.


The sector’s woes have been reflected in lower rates of loans allocated by banks to agriculture, with all three banks reporting a net decrease.


In Chicago, Mr Oppedahl said that “for the first time since the third quarter of 2006, the availability of funds for lending by agricultural banks was lower relative to a year earlier”.


‘Notably weaker demand’


Indeed, Mr Oppedahl added that Corn Belt lenders are forecasting “notably weaker demand by farmers to acquire farmland this fall and winter compared with a year ago”.


However, most bankers forecast stable prices, he said, adding that “a fairly tight supply of available properties for sale may contribute to the continued stability of farmland values”.


The St Louis Fed reported some expectation of a decline in “quality” farmland prices short-term, but a flat market for ranchland and pastureland.


Values in the Plains, meanwhile, “were expected to decline further in the coming months”, teh Kansas City Fed said, but added that “a larger share of bankers reported some improvement in the region’s agricultural economy.


“Going forward, agricultural economic conditions are still expected to remain subdued and financial stress in the farm sector may intensify further, but the sharp transition of recent years appears to be lessening.”

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