Mid-South farmland prices falling, cash rents rising

Amid excellent crop growing conditions and lower grain prices, farmland values in the Midwest and Mid-South continued to decline during the second quarter of 2014, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis.
The survey for the report was conducted from June 16 through June 30, 2014. The results were based on the responses of 45 agricultural banks located within the boundaries of the Eighth Federal Reserve District, which comprises all or parts of Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.
On average, prices for quality farmland, as well as ranch or pastureland prices, declined throughout the district.
Quality farmland prices averaged $5,473 per acre in the second quarter of 2014, down about .5 percent from an average $5,496 the first quarter of 2014, and down 3.5 percent from this time last year. Quality farmland prices in the Eighth District have fallen 6.7 percent from peak levels reached in the fourth quarter of 2013.
Ranch and pastureland prices also declined in the second quarter of 2013, with lenders reporting average prices of $2,313 per acre, down 7.4 percent from $2,499 per acre in the first quarter and down 2.5 percent from this time last year. Ranch and pastureland prices have fallen 7.5 percent from peak values reached in the fourth quarter of 2013.
Lenders reported that they expect quality farmland prices to continue to decline in the third quarter, relative to the same period last year, but they expect ranch and pastureland price to rise slightly.

Income declines

Average farm income, farm household spending and capital equipment expenditures also declined during the second quarter of 2014 compared with a year ago. Slightly more than half of respondents reported that farm income had decreased in the second quarter of 2014 compared with the same period a year earlier. Farm income levels in the third quarter are also expected to be lower than a year earlier, as are household and capital equipment expenditures.
While quality farmland prices have declined, cash rents have increased to their highest levels since the St. Louis Fed began its survey in the second quarter of 2012. Average cash rents during the second quarter were $191 per acre for quality farmland, up 4.9 percent from the first quarter. Lenders indicated they expected cash rents to remain steady in the next quarter.
Meanwhile, lenders reported cash rents for ranch or pastureland fell slightly to $59 per acre, down 4.9 percent from $62 per acre during the first quarter. However, proportionately more lenders reported that they expected cash rents will increase for ranch or pastureland next quarter, relative to the same period a year ago.
Across the district’s farming sector, interest rates rose modestly for all major variable-rate loan categories, while also rising for machinery/intermediate-term fixed-rate loans. Meanwhile, the interest rate on fixed-rate farm real estate loans declined 2 basis points from 5.20 percent to 5.18 percent in the first quarter.