Farmland values across the southern Midwest were mixed over the last quarter as weak grain prices and lower expected farm income continue to weigh on the Corn Belt. The overall credit condition was reported slightly weaker as respondents continued to report a widening divide between lower loan repayment rates and increased demand for new loans, loan extensions and renewals. Survey respondents were less confident about farmland values in the third quarter, as lower crop prices and emerging stress in the farm economy have affected the overall economic outlook.
Farmland Values
Farmland value reports from the Kansas City and St. Louis Federal Reserve’s showed mixed, although stable, results over the second quarter of 2015. The Kansas City Fed, surveying across the southern and western Corn Belt, reported irrigated cropland values steady over the last quarter, although non-irrigated farmland values declined more than 4%. Year-over-year, nonirrigated cropland declined 2.8% and irrigated cropland declined 3.6%. The largest declines were in Nebraska and Missouri, while Oklahoma and the Mountain states saw a slight increase in values.
Kansas City Federal Reserve Quarterly Farmland Values
The central Corn Belt, part of the St. Louis Federal Reserve District, reported quality farmland increased 0.5% over the last year and was unchanged over the past three months. Cash rents were also reported down 6.45% over the last year. However, values for pasture land exhibited positive growth, increasing 3.2% over the last twelve months. Bankers noted that strong cattle prices are herds being rebuilt are increasing the demand for pasture land.
St. Louis Federal Reserve Farmland Values
Credit
The credit condition of both Districts weakened during the second quarter 2015. Demand for new loans and loan renewals or extensions increased, while loan repayment rates continued to decline. Respondents have suggested that if this trend continues banks may increase interest rates, decrease funds available for loan, and increase collateral requirements to prepare for a potential credit crunch in the agriculture sector. The further decline expected in farm income in 2015 increases potential concerns over farmers ability to repay currently outstanding operating notes.
Outlook
Respondents for both reports believed that farmland values would decline slightly in the third quarter due to low crop prices and stricter lending conditions. Bankers pointed to the growing potential of decreased farmer income in 2015 as well as a weakening credit condition.