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St. Louis Fed Ag Survey: Ranchland and Pastureland Value Increases Make History for AFM While Farm Income Declines Continue for the Fourth Quarter

ST. LOUIS― Ranchland and pastureland values posted solid increases in the fourth quarter of 2017 relative to a year earlier, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. However, consistent with past survey findings farm income declined in the fourth quarter from a year earlier.

The survey was conducted from December 15, 2017, through December 31, 2017. The results presented are based on the responses from 23 agricultural banks within the boundaries of the Eighth Federal Reserve District. 

The Eighth District includes all or parts of seven Midwest and Mid-South states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. 

Farm Income, Expenditures Slightly Decrease

The majority of lenders continue to report year-over-year declines in farm income. Based on a diffusion index methodology with a base of 100 (results above 100 indicate proportionately higher lender values compared with the same quarter a year earlier; results lower than 100 indicate lower lender values), the fourth-quarter index value for farm income was 57. 

The survey found bankers modestly optimistic about the near-term prospects for farm income, yielding a diffusion index of 65.

Quality Farmland Values and Cash Rents Both Increase

Quality farmland values rose 5 percent in the fourth quarter. At the same time, ranchland and pastureland values increased 14.8 percent, which is the largest gain ever reported by the Agricultural Finance Monitor. “The St. Louis metropolitan area continues to creep up U.S. Highway 61 toward this area. 

In response, demand for lower- quality land for recreation is rising as the economic outlook for people from the city improves. This also causes other classes of land to hold their value,” stated a Missouri lender. Cash rents increased from a year earlier: Quality farmland rose by 3.9 percent, while rents for ranchland and pastureland rose by 10.1 percent.

Special Questions Regarding the Health of Rural Economy and Return on Farmland

There were three special questions in this quarter’s survey. The first question asked bankers about the health of the rural economy in their area. Nearly 65 percent of lenders believe the economy in their region could be characterized as fair to poor. Only 35 percent reported the economy in their region could be characterized as good. The second question was about their region’s economic outlook in 2018. 

About 22 percent expect economic conditions in their area to worsen, 70 percent expect little change, and 9 percent expect economic conditions in their area to improve in 2018. The third question asked about their expectation for farmland returns in 2018. 

The majority of lenders, 91 percent expect the return on farmland to landowners in their area to be greater than 0 percent but less than 5 percent. 

The remaining 9 percent expect farmland returns in their area to be greater than 5 percent but less than 10 percent in 2018.