North Mississippi farmland values are holding strong, but if crop prices continue downward it will pressure both land prices and land rents, says Abbott Myers, Dundee, Miss., rice/grains producer who is chairman of the Mississippi Land Bank.
“We’ve all known soybean prices weren’t going to stay at $17 forever, and prices of other commodities are below highs of recent years,” he said at the organization’s annual meeting. “And we all know farmland prices are high.
“In north Mississippi, land prices haven’t gone down — they’re pretty much stable. There haven’t been that many land sales, and those that have occurred have been amazingly strong. Recreational land has actually increased in price, indicating that people have more disposable income and they’re investing it in land for hunting, fishing, and other recreation.”
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But Myers says, if farm income continues to slide, land prices and land rent will also have to come down.MIKE MCCORMICK, center, new president of the Mississippi Farm Bureau Federation, visits with producers Jan Hill, left, Woodland, Miss., and Ronald James, Holly Springs, Miss.
“How much that will be, or when, we just don’t know. History shows that land prices tend to track farm income. Many of us remember the 1980s, when a sharp downturn in farm income brought a steep drop in land prices — U.S. farmland lost as much as 50 percent of its value.”
He cited an analysis by grain marketing specialist Richard Brock, based on USDA 2014 farmland values, indicating that land last year was overvalued by 16 percent and that based on projected 2015 gross farm income, land values should be even lower now.
“That may not be the case for your farm,” Myers says, “but it can be looked at as a trendline showing what can happen.”
Even if land prices fall, he says, landlords may be reluctant to adjust cash rent downward, and farmers may be hesitant about asking for an adjustment for fear someone else will get the land.
“The positive side of the ag economic situation is that farmers today aren’t heavily leveraged, as they were in the 1980s crisis — they have more income, more cash on hand. The downside is that it costs so much more nowadays to put in a crop.
Lower oil prices help
“Oil prices are down quite a bit, which has helped, but prices of everything else are up, and we’re going to have a tight year making money in farming. Even though farmers have money from recent good years, we all know you can burn through it in a hurry with costs as they are today.”
Interest rates, which have been at historic lows for six years, “have got to go up,” Myers says. “The big question is, when? Nobody knows. There have been predictions galore about interest rates going up, and all the predictions have so far been wrong.SCOTT CROCKETT, from left, Senatobia, Miss.; Jeff Smith, Clarksdale, Miss.; and Lee Tucker, Corinth, Miss., visit during the bankâs annual meeting.
“The Federal Reserve quit buying bonds at the end of 2014 and began positioning itself to raise interest rates. But they’ve pretty much painted themselves into a financial corner as to what they’re going to do and how they’re going to do it. The best guess is that they’ll raise interest rates in the first or second quarter of 2016 — maybe. We just have to wait and see.”
Political unrest in the U.S. and worldwide has been an influence on the economy, which hasn’t recovered the way analysts were predicting, Myers says. “First-of-year figures indicated the economy was getting ready to roll, and two months later the figures were revised downward. So, we’re still waiting for the economy to fully recover.”
Uncertainty poses a challenge for farmers, he says. “If we have a huge soybean crop this year, we could easily see beans drop below $9. One bright spot, China is still buying more soybeans. The Argentine government is imposing a 35 percent export tax on farmers on the grain they export. Hopefully, our Washington lawmakers don’t hear about this and get ideas.”
Regardless, Myers says, “Argentina is going to continue to be a major competitor for U.S. grains, and Ukraine is a potentially significant competitor, if they can ever get their political differences with Russia resolved.”
California’s long-running drought, and drought in Ukraine and other areas will continue to have an impact on agriculture, he says.
Reliable financing important
As a major consumer of capital, agriculture will need adequate, reliable financing to maintain its high level of production, Myers says. “If we farmers of today prosper in agriculture, then we will be able to provide a source of capital for our children and grandchildren to have an opportunity to prosper in this great enterprise.”
To that end, he says, Mississippi Land Bank’s growth indicates it is meeting a need in the area it serves.ALAN BLAINE, from left, Starkville, Miss.; Hunter Taylor, Senatobia, Miss.; Steve Cummings, Coffeeville, Miss.; and John Taylor, Natchez, Miss., were among those attending the Mississippi Land Bank annual meeting.
“We specialize in agricultural loans — not just for land, but for production, equipment, grain bins, irrigation, anything involving agriculture. We try to offer the most competitive interest rate possible. And at the end of the year, if we have a profit, which comes mainly from volume, that money goes to strengthen our capital position, to help us grow and maintain the financial security of our organization, and to reduce the interest rate we offer our borrowers. Any excess beyond that goes to patronage dividends to our stockholders.
“Some financial institutions charge higher interest rates so they can pay higher dividends to stockholders. But, our board of directors takes the position that we want to give the lowest interest rate possible on the front end; then if we make a profit through volume, we share that profit through a patronage dividend. And we’ve been very successful at that.”
In 2014, Myers says, the bank returned $2.8 million to stockholders in patronage dividends — “a record for us. That equals 54 basis points off our stockholders’ loans, a huge financial benefit. Since 1996, we’ve given back $24.6 million to our stockholders.
Gary Gaines, MLB president, in his annual report, said member equity continues to grow, reaching 97.8 percent for 2014, “a very positive trend.”
Money loaned in 2014 for new business was “outstanding,” he says, up 7 percent. Coming on the heels of increases of 5.5 percent in 2013 and 8.8 percent in 2012, “we’ve now had three record-breaking years in succession.
“Volume of loans closed totaled $144.3 million in 2014, up from $131.7 million in 2013 — a really healthy growth rate that allows us to maintain capital at a level we can grow at a reasonable pace. We had three branch territories that exceeded $100 million in loans in 2014: Senatobia, Starkville, and Clarksdale, with a total $566.9 million in outstanding loan volume.
“Credit quality continues outstanding, at 99 percent-plus,” Gaines says, “an excellent position to be in, particularly with the likelihood that we’re facing some level of downturn.”
The organization continues to support an extensive list of youth programs, he says, including yearly scholarships to universities and community colleges in its territories.
“While we can’t predict the timing or extent, we’re more than likely looking at a downtrend in agriculture,” Gaines says. “But stress models indicate we have adequate capital to carry us through difficult times and weather the storm.”
Women in Agriculture
Rachael Carter, Mississippi State University Extension economist and specialist in enterprise and community resources development, spoke on behalf of Mississippi Women in Agriculture.RACHAEL CARTER
“The organization grew out of a national program that was supported by Mississippi State University,” she says. “Women in the state, who are part owners and/or operators of farms, wanted education and mentorship to enable them to become better business partners, with training in the financial, legal, production, marketing, human resources, and education aspects of a farm operation.”
The organization’s goals include two programs a year for farm women, Carter says, as well as an agricultural scholarship at MSU. There now is a quarterly webinar series on numerous topics and a yearly conference, which this year will focus on policy issues.
“We welcome participation from members of organizations such as yours, and by others with various areas of expertise,” she says.
Mississippi Women for Agriculture aims to increase the knowledge and skills of women in all aspects of farm and agribusiness management, including risk management, and to unify women from all farm and commodity groups and organizations into a cohesive group to celebrate, promote, and lobby for agriculture Mississippi.
Educational classes and workshops cover everything from net worth statements and farm/family budgets to lessons on how to form an effective plan to transition a farm to the next generation. It also offers Mississippi farm women the opportunity to form friendships, share ideas, and develop new ways to make their production agriculture farms and agribusinesses more profitable. It encourages members to engage the public while promoting issues important to agriculture.