Farmland Values Up; Income and Cash Rents Declined – St. Louis Fed, 1Q 2017 Report

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Farm income declined in the first quarter of 2017 from a year earlier according to the latest survey of agricultural bankers in the Eighth Federal Reserve District. Proportionately more bankers reported that farm households continued to trim household expenditures and capital spending in the first quarter from a year earlier.  

Slightly more bankers reported that declines in farm incomes and farm household expenditures in the first quarter exceeded their expectations from three months earlier. Quality farmland and ranchland or pastureland values rose sharply in the first quarter from a year earlier. The increase in quality farmland values in the first quarter was the largest in three and a half years. However, the majority of bankers expect farmland values to decline in the second quarter.

Cash rents for quality farmland and ranchland or pastureland declined slightly in the first quarter. Interest rates on fixed rate loans secured by farm real estate have increased by only 10 basis points over the past four quarters (0.10 percentage points). Results from our special questions suggest that the overall quality of the Eighth District farm loan portfolio remains stable (no significant repayment problems). We also asked our bankers to cite their top concern for 2017. A little less than two-thirds (62 percent) reported that further declines in farm incomes was their number one concern.  Click here to read the the 1Q 2017 Agricultural Finance Monitor Report.

Selected Quotes from Banker Respondents Across the 8th Federal Reserve District

Illinois: Real estate values fell in 2016; however, recent land sales are showing some strength, which has helped to bring prices back up slightly. Soybean prices held up well, which allowed farmers to market their 2016 crop at a higher price than projected. Although corn prices have trended lower, producing some concern for 2017 crop income, the majority of our customers are very good marketers and will do okay by holding their costs down. Most have renegotiated any leases that they perceived to be too high to cash flow; this has raised expectations for a profitable year due to some input costs being reduced for 2017.

Arkansas: Farmers are experiencing slim margins, but also an extended time frame in revenue collections. For example, farm program payments for low market prices are not paid for 14-15 months after harvest.

Arkansas: Poultry production income remains stable, with some expansion taking place. Cattle prices have softened, which has adversely affected overall farm income. Credits still are performing well.

Missouri: Demand for recreational ground (trees, no timber) has increased dramatically in the past year, with prices paid exceeding that of pastureland. Income in 2016 exceeded income in 2015, which was affected by excessive moisture.

Click here to read the the 1Q 2017 Agricultural Finance Monitor Report.

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