Farmland values and cash rents declined moderately in the fourth quarter of 2016, reports the Federal Reserve Bank of Kansas City.
“Bankers across the Tenth District noted that persistent weakness in farm income continued to weigh on farmland values,” a release from the group said. “Although most farmland purchases in the quarter were financed with new debt, the portion of new loans with a cash down payment decreased.”
The persistent and widespread deterioration in farm income has occurred alongside increasing loan demand and lower repayment rates. These trends are expected to continue in the first quarter of 2017.
Leaders at Farmers National Company see more variability in land prices, depending on the area.
“This winter, questions abound as to the direction of commodity prices, interest rates, inflation, challenges in the world economy, weather and U.S. tax law,” Randy Dickhut, senior vice president of real estate operations for Farmers National Company, said. “Buyers of ag land are asking if it is an opportune time to make a purchase of a farm or ranch, while sellers are asking if the market dynamics are indicating that it is good time to sell land. Depending on location, quality of land and other factors, our agents report seeing regions and local areas where land prices are stable to somewhat strengthening post-2016 harvest. Then there are other areas where land values have continued to decline.”
A key factor impacting land prices will be interest rates, Dickhut said. Grain and livestock prices affecting farm and ranch income also will influence land values.
“Foreign trade policy and its effect on agriculture will be closely watched over the next few months. Potential changes in tax laws could affect estate taxation and capital gains rules that in turn influence buying and selling decisions,” Dickhut said.
The farm economy is not a one-size fits all, said Will Sawyer, Rabobank’s director of animal protein research for North America, in an exclusive interview with PORK Network recently.
“If you look at 2008 through 2012, we saw a period that was fantastic for our row-crop customers. The last few years have been an especially good period for livestock. Now we’re entering into a new phase,” Sawyer said. “When we think about overall credit availability, for Rabobank, we have not pulled back in any way from our ability to extend credit and to work with our customers. We continue to bank on the top 25% - the ones who are going to stand times of volatility.”
For additional information on the agricultural economy visit kansascityfed.org/research/agriculture.