St. Louis: Cash rent rates tumble
Declining farm income is cutting into farm household expenditures and capital spending, as well as putting downward pressure on farmland values and cash rents, according to a second-quarter 2016 ag bankers survey in the Federal Reserve Bank of St. Louis. The district covers all or parts of Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.
Hardest hit has been cash rents for ranch or pastureland. Bankers in the survey reported cash rents declined 20.7 percent compared with a year ago. Cash rent for good farmland dropped 10 percent from a year earlier.
Quality farmland value declined less than 1 percent in this survey compared with 6.4 percent reported in the previous survey. However, this represents the fourth consecutive quarter of declining value. Agricultural land values are expected to decline in the third quarter, compared with a year earlier, according to a majority of agricultural bankers.
District-wide land value changes compared to previous year
• Pastureland/ranchland: -7.4 percent
• Farmland: -0.7 percent
District-wide changes in average cash rents compared to previous year
• Pastureland/ranchland: -20.7 percent
• Farmland: -10 percent
Similar to the previous two surveys, interest rates across all categories changed modestly compared with the previous quarter.
Interest rates on fixed-rate loans for land, machinery and other intermediate-term investments fell, while variable-rate loans for machinery and other intermediate-term investments rose. Variable-rate loans to purchase land showed the biggest increase.
District-wide average interest rates compared to previous quarter
Fixed rate
• Operating: 5.57 percent, no change
• Intermediate-machinery loans: 5.74 percent, -0.04 percent
• Farm real estate: 5.18 percent, -0.04 percent
Variable rate
• Operating: 5.35 percent, +0.01 percent
• Intermediate-machinery loans: 5.56 percent, +0.06 percent
• Farm real estate: 4.97 percent, +0.17 percent
Eighty percent of respondents indicated that borrowers had experienced either a modest or significant financial deterioration during the quarter.
Nearly half of the respondents believe tenant farmers with cash rental arrangements are the most at risk to a prolonged downturn in farm incomes. A little more than a third of farm bankers believe that highly leveraged landowners with little equity are most exposed to a prolonged downturn in farm incomes. Bankers believe that farmers or ranchers with livestock operations are the least exposed to a prolonged downturn.
Chicago: Land values follow grain markets
Second-quarter 2016 farmland values in the Federal Reserve Bank of Chicago district were down 1 percent compared to a year earlier, but increased 1 percent from the previous quarter after a rally in corn and soybean prices. Those crop prices have since dissipated, however.
David Oppedahl, business economist, summarized land values and credit conditions in the Chicago bank’s latest AgLetter. The district covers all or portions of Illinois, Indiana, Iowa, Michigan and Wisconsin.
Although district average agricultural land values fell from a year ago, both Illinois and Wisconsin saw year-over-year and quarterly increases in farmland values.
District change in “good” farmland values
• Quarterly (April 1 to July 1, 2016): +1 percent
• Annual (July 1, 2015-2016): -1 percent
State change in “good” farmland values (previous quarter and year, respectively)
• Illinois: +2 percent; +1 percent
• Indiana: -3 percent; -2 percent
• Iowa: no change; -6 percent
• Michigan: -1 percent; -1 percent
• Wisconsin: +5 percent; +7 percent
Only 1 percent of survey respondents expected farmland values to rise during the third quarter of 2016, while 48 percent expected them to move down and 51 percent expected them to be stable.
Ag credit conditions in the second quarter of 2016 were weaker than a year ago, but there were some signs of improvement. Repayment rates for non-real-estate farm loans softened, and loan portfolios reported as having repayment problems was higher, but still less than six months ago. Renewals and extensions of non-real-estate farm loans were above the same quarter last year, while demand for non-real-estate farm loans was up.
Interest rates on agricultural real estate and operating loans moved lower in the second quarter of 2016, but rates for feeder cattle loans were up. At the same time, further credit tightening was evident, as 27 percent of the survey respondents reported requiring larger amounts of collateral than a year ago; none reported smaller amounts.
District-wide average interest rates and change from previous quarter
Variable rate loans
• Operating loans: 4.89 percent; -0.02 percent
• Feeder cattle loans: 5.05 percent; +0.04 percent
• Real estate: 4.57 percent; -0.08 percent
Indiana farmland values dropping
Indiana farmland values continued a downward trend, with average declines of 8.2 to 8.7 percent depending on land quality, according to the 2016 Purdue Farmland Value Survey.
Over the past two years, the average farmland value has fallen about 13 percent. Declines of this size have not been seen since the mid-1980s.
Cash rents also declined for the second consecutive year.
Respondents expected farmland values to fall an additional 1.9 percent to 2.2 percent during the last half of 2016.
The declines are largely the result of tighter profit margins from low commodity prices.
Kansas City: Lower values hurting credit
Low commodity prices have continued to drag down farm income and weaken agricultural credit conditions, according to a quarterly survey of ag bankers in the Federal Reserve Bank of Kansas district. The region covers Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri.
Cropland values also have trended lower across the district, and the 5 percent decrease in district irrigated cropland values was the largest annual decrease in 29 years, noted report authors Nathan Kauffman and Matt Clark.
The declines in Kansas cropland values were the largest year-over-year declines in any state during the downturn of the past two years. Nebraska cropland values fell for an eighth consecutive quarter.
Many bankers continue to anticipate further declines in farmland values in the months ahead. The moderating farmland values may also add pressure to borrowers and banks that rely on highly leveraged farmland as collateral.
District-wide land value changes compared to previous year
• Nonirrigated cropland: -3.18 percent
• Irrigated cropland: -4.98 percent
• Ranchland: -2.77 percent
Demand for non-real-estate farm loans and loan renewals continued to climb. However, bankers reported an increase in the share of loan applications that were denied in the second quarter of 2016. Almost 15 percent of bankers reported denying more than 10 percent of applications for farm operating loans.
The share of farm loans with identified repayment problems increased to at least 18 percent in all states. Second-quarter loan repayment rates were lower than a year ago, and the severity of repayment rate problems has increased slightly over the past year.
Interest rates declined slightly compared to the previous quarter.
District-wide average interest rates on fixed-rate loans, compared to the previous quarter
• Operating loans: 5.71 percent; -0.01 percent
• Intermediate-term loans: 5.51 percent; -0.07 percent
• Long-term farm real estate: 5.32 percent; -0.04 percent
Read also: Pacific Northwest, Southcentral ag land values holding up 
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Dave Natzke
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