Quality Farmland Values Down in Eighth District

May 20, 2014

Farm income in the Eighth Federal Reserve District1 declined in the first quarter of 2014 relative to a year ago, while farm household spending increased and capital equipment spending fell, according to the most recent issue of the Agricultural Finance Monitor, produced by the Federal Reserve Bank of St. Louis. This survey is based on responses from 49 agricultural banks within the boundaries of the Eighth District.2

Farm income is also expected to decline in the second quarter of 2014, though the forecast is slightly less pessimistic than the expectations were for the first quarter.3 Bankers expect household and capital equipment expenditures to decline in the second quarter from year-earlier levels.

Current and Expected Land Values and Cash Rents

Quality farmland values across the District averaged $5,496 per acre in the first quarter of 2014, modestly lower than the fourth-quarter average of $5,868 per acre, but up 7.5 percent from one-year prior. Cash rents for quality farmland across the District averaged $182 per acre in the first quarter, down 4 percent from the fourth quarter.

Proportionately more bankers expect quality farmland values to decrease and cash rents for quality farmland to increase over the next three months relative to a year earlier.

Financial Conditions

According to the survey, demand for farm loans in the first quarter of 2014 was notably higher than a year ago, and more respondents expect that higher demand to continue in the second quarter of 2014 compared with a year earlier. Likewise, funds available for farm loans increased in the first quarter of 2014, and adequate funds are expected to be available in the second quarter. District loan repayment rates in the first quarter were above year-earlier levels, but repayment rates are expected to return to year-earlier levels in the second quarter of 2014.

During the first quarter of 2014, interest rates on variable-rate loans experienced the highest decline from three months earlier when compared with the change in yield across all three loan categories: operating loans, machinery/intermediate-term loans and farm real estate loans.

Notes and References

1 The Eighth District includes all of Arkansas and parts of Missouri, Tennessee, Kentucky, Illinois, Indiana and Mississippi.

2 Some caveats about this report: This survey is relatively new, so the data are not adjusted for seasonal patterns. Users are cautioned to interpret the results carefully and against drawing firm conclusions about longer-run trends in farmland values and agricultural lending conditions. Finally, the total number of responses in each zone is relatively small, which statistically tends to suggest that the responses in each zone have a larger plus-or-minus margin of error than for the District as a whole.

3 Readers are cautioned that farm income is highly volatile and subject to seasonal patterns that occur in the agricultural sector.

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This blog offers commentary, analysis and data from our economists and experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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