Farmland markets have begun to cool in the Federal Reserve Bank of Kansas City (covering Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri), according to Nathan Kauffman, Omaha branch executive, and Maria Akers, associate economist. A growing number of bankers felt that farmland values had topped out and could retreat from current highs.
After several years of large increases, ag bankers in the district indicated cropland value gains slowed dramatically in the fourth quarter, and ranchland values declined slightly. Farmers continued to be the primary buyers of farmland, with most intending to expand their operations. However, the sharp slowdown in cropland price gains occurred despite there being less farmland for sale compared with last year. Looking ahead, more bankers expected farmland values to decline in 2014 while fewer expected prices to rise further.
Cropland cash rental rates also stabilized in the fourth quarter. When farmland values were surging in recent years, landowners often negotiated substantial increases in cash rents around year-end. In the fourth quarter of 2013, though, rental rates on District cropland remained largely unchanged from the previous year. However, ranchland cash rental rates rose moderately, especially for pastures that had recovered from drought.
The slowdown in farmland value gains and increases in cash rent occurred amid expectations of weaker farm income. Agricultural bankers reported farm income fell short of year-ago levels for the third straight quarter, primarily due to lower corn prices. Weaker farm income boosted loan renewals, and demand for new operating loans held at a five-year high as producers prepared for spring planting. Some bankers also were concerned low crop prices and high production costs could squeeze profit margins for their farm customers and potentially affect the performance of their agricultural loans.
The average fixed interest rate on farm operating loans has held below 6% for more than a year and the average fixed interest rate on farm real estate was about 5.4% throughout 2013. Despite heated competition for farm loans, agricultural bankers reported little change in collateral requirements.
Bankers in the Federal Reserve Bank of Dallas (covering all or portions of Texas, New Mexico and Louisiana) continued to
report negative effects from drought, although some areas saw improved conditions resulting from recent rains.