Farmland values continued to rise during the second quarter of 2013, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. Farm income, as well as capital and household spending, also increased slightly compared with a year ago.
The survey for the report was conducted from June 11 through June 28, 2013. The results were based on the responses of 48 agricultural banks located within the boundaries of the Eighth Federal Reserve District. The Eighth District comprises all or parts of the following seven Midwest and Midsouth States: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.
On average, Eighth District quality farmland and ranch or pastureland prices were higher than first-quarter 2013 and second-quarter 2012 levels. In addition, many lenders reported that they expected prices for quality farmland and ranch or pastureland to increase in the third quarter relative to the third quarter 2012.
Quality farmland prices averaged $5,672 per acre in the second quarter of 2013, up 11 percent from an average $5,111 in the first quarter of 2013 and up more than 20 percent from $4,705 per acre in the second quarter of 2012. Ranch and pastureland prices were also slightly higher in the second quarter of 2013, with District lenders reporting average prices of $2,372 per acre, up about 4 percent from $2,274 per acre in the first quarter 2013 and up close to 1 percent from $2,349 per acre the previous year.
Looking ahead to the third quarter, lenders reported that they expect land values to rise relative to last year. A proportionately larger number of respondents expect values to increase for quality farmland and ranch or pastureland in the third quarter relative to a year earlier, the report said. Using variables based on diffusion index methodology, the average expectations index for quality farmland in the third quarter of 2013 was 127, while for ranch and pastureland prices, the index value was 108. (With diffusion index methodology based on survey responses, 101-200 indicates overall expectations of higher values, while 0-99 indicates expectations of decreasing values. A value of 100 indicates expectations remain the same.)
Average farm income and spending rose slightly in the second quarter of 2013 compared with a year ago. “On net, respondents indicated that second-quarter District farm income, along with capital and household spending, increased modestly relative to their respective levels one year ago,” the report said.
Based on diffusion index methodology, survey results showed an actual income index level of 108 for the second quarter of 2013 across the District. Looking ahead at the third quarter, lenders indicated they expected lower farm income, with survey results showing a diffusion index value of 91. “Across the District, bankers expect farm income to fall over the course of the next quarter compared with the third quarter of 2012,” according to the report.
Average cash rents per acre for quality Eighth District farmland during the second quarter of 2013 were higher than the first quarter 2013 and the second quarter of 2012.
For the second quarter 2013, cash rents for quality farmland averaged $183 per acre, up 6.7 percent from an average $171 per acre in the first quarter 2013 and up 12.9 percent from an average $162 per acre the previous year. Meanwhile, lenders reported cash rents for ranch or pastureland of $57 per acre, down from the first quarter’s average of $64 per acre, but remaining above last year’s average of $53 per acre.
Looking forward, lenders expect rents to increase in value for all land categories during the third quarter of 2013. The report also noted that “anecdotal information collected from other sources suggests some shift in cash rents toward a variable or profit-sharing basis,” and that this shift may not be fully captured in current cash rent data.
Ag Loan Demand and Repayments
On average, lenders reported that while demand for agricultural credit across the District remained unchanged in the second quarter compared with a year ago, they expected loan demand to pick up in the third quarter. In addition, survey results showed more funds were available to prospective borrowers during the second quarter of 2013 than a year ago, and this should remain the case in the third quarter. Loan repayment rates also remained essentially the same compared with a year ago, and expected to remain unchanged in the third quarter. Average interest rates on most types of loans increased slightly from the first quarter of 2013, with rates on variable interest loans increasing more than fixed-rate loans.