Farmland values remained stable during the fourth quarter in the Tenth Federal District amid falling grain prices and declining farm income. Irrigated farmland values reported a 0.8% annual increase across the district. Irrigated farmland in Oklahoma improved the most, increasing 18.9% from last year. Non-irrigated farmland values increased 0.1% from last year across the District. Oklahoma non-irrigated farmland improved the most, increasing 19%. Oklahoma irrigated and non-irrigated farmland values benefitted substantially from last year due to rain in the fourth quarter which improved drought conditions in the area.
Quarterly changes in farmland values were also stable. Non-irrigated cropland increased less than 1%, while irrigated farmland decreased slightly from the third quarter 2014. Demand for highly productive properties remained elevated in the District. Bankers reported level or increased demand for “good-quality cropland” but demand for more marginal ground has decreased. Rental rates decreased in the fourth quarter. Farmers cited decreasing profit potential due to stubborn input costs that have refused to fall with grain prices.
Tenth District Farmland Value Gains by State, Fourth Quarter 2014
Source: Federal Reserve Bank of Kansas City Tenth District Agricultural Credit Conditions Report
Credit
Credit conditions continued to decline in the fourth quarter as expected farm income remains suppressed due to low grain prices. The lower farm income has caused loan repayment rates to decline and in turn caused loan demand to increase. This widening divide, which has been building since mid-2013 is concerning for bankers who expect farm income to decline further over the next quarter. Bankers reportedly continue to have ample funds available and have not increased collateral requirements, but some indicated that if this trend continues credit standards will tighten.
Outlook
Farmland values have remained resilient despite falling grain prices and farm income, but bankers are expecting the first quarter of 2015 to be more difficult. The credit condition and farm income are projected to continue the trend seen this quarter and decline. The pressure from the record setting corn and soybean crop is expected to continue to suppress crop prices over the next few months. The heavy ranching presence in this District may support farmers, as record livestock profits may help support crop prices locally.
Bankers do not expect a significantly larger number of operators to not receive funding, but the number will increase from previous years. As the credit requirements tighten we expect farmers to sell assets, like farmland, to increase their operating capital.