St. Louis Fed Ag Survey Shows Farmland Prices down for First Quarter 2014

ST. LOUIS – Farm income declined in the first quarter of 2014 relative to a year earlier, according to the latest Agricultural Finance Monitor, a newsletter published quarterly by the Federal Reserve Bank of St. Louis. However, the decline appears less severe than respondents expected according to our previous survey.

The survey for the report was conducted March 17, 2014, through March 31, 2014. The results are based on the responses from 49 agricultural banks within the boundaries of the Eighth Federal Reserve District. The District comprises all or parts of seven states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. 

Farmland Prices Fall Slightly from Previous Quarter

Quality farmland prices fell slightly in the first quarter, a reversal of the gain reported in the fourth quarter of 2013. Despite the decline, farmland prices still measured 7.5 percent higher compared to levels reported a year earlier. According to the survey, a majority of agricultural bankers continue to expect farm income and farmland values to decline over the next three months compared with year-earlier levels.

Expectations on Future Spending down

According to respondents, expenditures by farm households in the first quarter slightly exceeded spending levels from one year ago.  However, similar to the situation with farmland prices, a majority of bankers expect both household expenditures and farm equipment expenditures for the second quarter of 2014 will trend downward from year-earlier levels.

Expectations for Cash Rents Trending Positive

As stated previously, expectations of quality farmland values are trending down over the next quarter, compared to a year earlier. In contrast, expectations for cash rents on quality farmland reflect a slight upward bias and even stronger expectations for cash rents for ranchland or pastureland over the next quarter.

Financial Conditions

Our survey showed that the demand for farm loans in the first quarter of 2014 was notably higher than a year ago. Respondents expect that higher demand for farm loans will continue in the second quarter, compared with year-earlier levels.

Survey respondents reported that more funds were available to prospective borrowers in the first quarter than at the same time last year and that adequate funds are also expected to be available in the second quarter of 2014.

Special Question

This survey included one special question: Have expectations of lower farm income in 2014 changed lending competition in the highly competitive agriculture loan market?

Three of four bankers believe that the lower farm sector income expectation has had no change on lending competition. On the other hand, 16 percent responded that competition has indeed increased, while just 9 percent have affirmed some easing of lending competition. Overall, slightly better than 90 percent of responses indicate that, despite lower farm income expectations, lending competition remains as strong as, or stronger, in some markets than in previous periods.