Cropland values in the seven-state Tenth District Federal Reserve District generally held steady in the fourth quarter of 2014, despite further declines in farm income, according to the Federal Reserve Bank of Kansas City’s quarterly Survey of Agricultural Credit Conditions. Most bankers surveyed, however, said they expect cropland values to fall in 2015 alongside reduced expectations for farm income.
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) fourth-quarter 2014 ag bankers survey:
District-wide land value changes compared to previous year
• Nonirrigated cropland: +0.1%
• Irrigated cropland: +0.8%
• Ranchland: +10.5%
District-wide average interest rates, compared to the previous quarter
Fixed rate loans
• Operating loans: 5.70%, unchanged
• Intermediate-term loans: 5.06%, down .41%
• Long-term farm real estate: 4.83, down .54%
Bankers reported there was solid demand for good-quality cropland but limited desire for less-productive ground. Cash rental rates also had moderated only slightly from a year ago despite prospects of lower crop revenue in 2015.
Fewer farms for sale may be partially supporting current cropland values. Bankers indicated there was significantly less farmland on the market in 2014 and a higher portion was being sold to farmers than in 2013. A majority of farmers who expanded their land holdings said they planned to farm it themselves. Bankers said about 20% of farmland sales were to nonfarmers who planned to rent out the land for crop production. However, investment demand for farmland for recreational use or future real estate development was still relatively stable.
Recent developments, however, did cause cropland values to vary across the district. After reporting some of the most dramatic fluctuations in recent years, Nebraska bankers indicated cropland values declined slightly in 2014. Cropland values held steady in Kansas and western Missouri, while the pace of growth slowed in the Mountain states of Wyoming, Colorado and New Mexico. Bankers in Oklahoma reported additional gains in farmland values were supported by a relatively strong farm economy underpinned by profits in the livestock sector. In fact, record high prices for both feeder cattle and fed cattle continued to fuel demand for good-quality pasture and drove additional gains in ranchland values across the district.
Although farmland values remained relatively stable, farm income continued to weaken across most of the district. Overall, more than half of survey respondents reported lower incomes in the fourth quarter than a year ago. While overall farm income continued to soften, livestock producers have experienced record profits. Profit margins remained particularly strong for cow/calf operators due to low feed costs and persistently high feeder cattle prices, which have been supported by reduced U.S. cattle inventories.
Demand for operating loans to pay for crop inputs is expected to remain elevated, and some bankers expressed concern that loan repayment rates might deteriorate if weak profit margins persist. Collateral requirements were little changed.
Following several years of strong income and gains in cropland values, 2014 appeared to be a turning point for crop producers in the Tenth District. Lower crop prices and elevated input costs trimmed profit margins and slowed cropland value appreciation. More producers borrowed to pay operating expenses and loan repayment rates fell below year-ago levels. Looking forward, bankers expressed concern that tighter profit margins, higher debt levels and a decline in cropland values may adversely affect farm loan performance in 2015.