After several years of strong price appreciation, bankers in the Federal Reserve Bank of Kansas City report cropland value gains have dropped considerably. In fact, nonirrigated and irrigated cropland values declined modestly from last quarter, and were hovering just above year-ago levels.
District ranchland values, however, were still rising, although at a slower pace than in the past several years. Improved profitability in the livestock sector and the potential for herd rebuilding has underpinned demand for high-quality pasture and supported further gains in ranchland values.
About a third of agricultural bankers in the survey also expected cropland prices to decline further, while less than 5% anticipated value gains, according to economists Nathan Kauffman and Maria Akers.
A summary of 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) third-quarter 2014 ag bankers survey:
District-wide land value changes compared to previous year
• Nonirrigated cropland: +1.2%
• Irrigated cropland: +2.0%
• Ranchland: +4.7%
Although crop prices have fallen significantly over the past year, the drag on farm income from lower prices may be lessened for producers with crop insurance and those that sold a portion of the 2014 crop at higher prices earlier in the year. Still, lower farm income has precipitated an increase in the demand for non-real estate farm loans in the district, and may affect loan repayment rates in the coming months. Looking ahead, some bankers were concerned that persistent low crop prices may place further stress on profit margins and cash flow for crop producers in 2015.
Agricultural bankers in the district reported increased demand for farm operating loans during the third quarter of 2014. Bankers noted that reduced working capital for crop producers contributed to a rise in the need for short-term loans.
In light of lower farm income expectations, bankers anticipated additional increases in the number of loan renewals and extensions, and further deterioration in loan repayment rates.
Despite different needs for short-term financing, agricultural bankers across the Tenth District reported sufficient funds were available for qualified borrowers. In addition, collateral requirements eased slightly in the third quarter, and average fixed interest rates on operating, machinery and farm real estate loans held steady.
District-wide average interest rates
Fixed rate loans
• Operating loans: 5.70%
• Intermediate-term loans: 5.47%
• Long-term farm real estate: 5.37%
To read the full report, click here.
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