Low commodity prices, including dairy, are affecting land values and credit conditions in major Federal Reserve and Farm Credit System districts. Region-by-region summaries of quarterly banker surveys can be found here.

Natzke dave
Editor / Progressive Dairy

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Land value declines steep

First-quarter 2016 farmland values in the Federal Reserve Bank of Chicago district were down 4 percent compared to a year earlier, the largest year-to-year decline since late 2009. Adjusted for inflation, annual declines were the steepest since 1987.

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.

Cash rental rates experienced a 10-percent year-to-year decline, eclipsing the drop seen in 2014-2015 and representing the steepest annual decline since 1987. After adjusting for inflation, cash rental rates are now 13 percent below their 1981 level.

Agricultural land demand, farmland listed for sale, the number of farms and amount of acreage sold were all down during the winter and early spring of 2016 compared with a year ago, according to a survey of about 200 ag bankers in the region. Nearly two-thirds of survey respondents expected farmland values to decrease during the second quarter of 2016.

District change in “good” farmland values

• Quarterly (Jan. 1 to April 1, 2016): -1 percent

• Annual (April 1, 2015-2016): -4 percent

State change in “good” farmland values (previous quarter and year, respectively):

• Illinois: -2 percent; -5 percent

• Indiana: +4 percent; -2 percent

• Iowa: -1 percent; -5 percent

• Michigan: -1 percent; -7 percent

• Wisconsin: -2 percent; +1 percent

The gap between cash rental rates and farmland values widened for the seventh year in a row. Farmland values have not fallen as much as cash rents, in part because interest rates have stayed quite low, diminishing the lure of alternative investments.

After increasing in the fourth quarter of 2015, variable rate interest rates on all types of farm loans declined a bit in the first quarter of 2016.

District-wide average interest rates and change from previous quarter

Variable rate loans

• Operating loans: 4.91 percent; down 0.05 percent

• Feeder cattle loans: 5.01 percent; down 0.07 percent

• Real estate: 4.65 percent; down 0.02 percent

Agricultural credit conditions deteriorated during the quarter, with repayment rates for non-real estate farm loans much weaker than a year ago. Loan renewals and extensions were much higher.

Credit tightening in the first quarter of 2016 was also evident: 28 percent of survey respondents indicated larger collateral requirements during January through March 2016 relative to the same period last year; none indicated smaller collateral amounts.

Survey respondents anticipated higher volumes for operating, dairy and Farm Service Agency-guaranteed loans during the second quarter of 2016. In contrast, they expected lower volumes for grain storage, farm machinery and feeder cattle loans.

Read the full Chicago district AgLetter.


Debt load carrying over

Poor cash flow and lower farm income are resulting in more carryover debt and loan restructuring, 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.

Loan repayment rates weakened for the tenth consecutive quarter, the longest streak since the early 2000s, noted report authors Cortney Cowley and Matt Clark.

With loan demand continuing to rise, bankers required more farm real estate as collateral for large, non-real estate farm loans.

Bankers also reported a significant increase in the use of USDA Farm Service Agency loan guarantees.

Despite lower repayment rates, however, delinquency rates have remained low compared to historical averages.

With the exception of irrigated cropland in the Mountain States, district nonirrigated and irrigated cropland values continued to moderate.

Although ranchland cash rents increased slightly in Oklahoma and the Mountain States, declines in Nebraska and Kansas brought district averages down sharply, 10 percent less a year earlier. District nonirrigated and irrigated cash rents were down 6 percent from the previous year.

District-wide land value changes compared to previous year

• Nonirrigated cropland: -3.52 percent

• Irrigated cropland: -2.38 percent

• Ranchland: -1.0 percent

Tightening profit margins have spurred reductions in both household and capital spending.

District-wide average interest rates on fixed-rate loans, compared to the previous quarter

• Operating loans: 5.72 percent, +0.05 percent

• Intermediate-term loans: 5.58 percent, +0.05 percent

• Long-term farm real estate: 5.36 percent, +0.05 percent

Read results of the quarterly Kansas City Fed ag credit survey.


The story is similar

Farm income erosion is reducing farm household expenditures and capital spending, as well as putting downward pressure on farmland values and cash rents, according to a first-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.

Bankers said the value of quality farmland declined 6.4 percent compared to the previous year, with the quarterly decline of 2.5 percent--the steepest drop since the second quarter of 2012. Quality farmland values have now declined from year-earlier levels in four of the past five quarters.

District-wide land value changes compared to previous year

• Pastureland/ranchland: +0.1 percent

• Farmland: -6.4 percent

After increasing over the previous two quarters, cash rents for ranchland or pastureland fell by an average of 2.2 percent in the first quarter of 2016.

District-wide changes in average cash rents compared to previous quarter

• Pastureland/ranchland: -2.2 percent

• Farmland: -7.5 percent

Interest rates on fixed-rate operating loans and loans to purchase machinery or for other intermediate-term loans fell, whereas variable-rate loans for these three loan types rose.

District-wide average interest rates compared to previous quarter:

Fixed rate

• Operating: 5.42 percent, -0.09 percent

• Intermediate-machinery loans: 5.68 percent, -0.06 percent

• Farm real estate: 5.10 percent, -0.03 percent

Variable rate

• Operating: 5.30 percent, +0.21 percent

• Intermediate-machinery loans: 5.45 percent, +0.17 percent

• Farm real estate: 4.97 percent, +0.02 percent

Read the Agricultural Finance Monitor.


Land values mixed

First quarter 2016 changes in land values within the Federal Reserve Bank of Dallas district were mixed, according to a quarterly agricultural bankers survey. The district covers portions of Texas, New Mexico and Louisiana.

Districtwide, dryland values rose 1.4 percent during the quarter, and were 5.1 percent higher than a year ago. Compared to the previous quarter, irrigated land values decreased 5.4 percent, while ranchland values were mostly unchanged.

First quarter 2016 district-wide land value changes compared to previous year

• Dryland: +5.1 percent

• Irrigated cropland: +0.2 percent

• Ranchland: +2.0 percent

Specific to dairy, the blizzard of December 2015 in the Texas Panhandle caused serious financial losses for many dairies from livestock deaths, high cull rates and reduced production. Combined with financial losses due to lower prices in all sectors of beef production, and the area’s livestock producers are facing viability challenges.

Overall demand for agricultural loans decreased for a second consecutive quarter, with operating loans the only category with year-over-year increases. Loan repayment rates declined more sharply, while loan renewals and extensions picked up.

Interest rates were slightly higher from the previous quarter across all loan types.

District-wide average interest rates compared to previous quarter

Fixed rate

• Feeder cattle: 6.07 percent, +0.03 percent

• Other farm operating loans: 6.11 percent, +0.03 percent

• Intermediate-term loans: 6.09 percent, +0.16 percent

• Long-term farm real estate: 5.81 percent, +0.14 percent

Variable rate

• Feeder cattle: 5.72 percent, +0.02 percent

• Other farm operating loans: 5.74 percent, +0.01 percent

• Intermediate-term loans: 5.78 percent, +0.09 percent

• Long-term farm real estate: 5.38 percent, +0.06 percent

Read the full Dallas Fed Agricultural Survey.


Dairy holding back

Northwest agricultural real estate values were stable to increasing through the first quarter of 2016, according to a quarterly report from Northwest Farm Credit Services (FCS). Although sales transactions are limited, most areas report steady demand for good quality agricultural properties.

Demand and market activity are generally dependent on property type and/or market segment. Agricultural property listings remain low, with many transactions occurring between landlords and tenants. Additionally, many areas report increased investor interest in agricultural properties.

The limited supply has anchored land values, despite concerns surrounding declining commodity prices and unfavorable weather patterns in select areas. A state-by-state review showed:

• Oregon: Average agricultural land values have been strong since 2012. Demand is strong for good quality irrigated and dry crop tracts.

• Montana: Land prices have softened since a high in 2013. However, lower land values don’t indicate weak demand. With fewer sales of high-dollar per-acre properties, lower average values reflect an increase in the number of sales of lower dollar per acre land categories.

• Idaho: Tight supplies and strong demand for quality cropland supported higher average land values in Idaho since 2013.

• Washington: Average dollar per acre land values have been mostly stable since 2011. An increase shown in 2015 is due to a limited supply and strong demand for cropland and lands with permanent plantings.

Existing dairy sales, facility expansions and new dairy construction continue to be limited. In Idaho, most dairy producers are still holding back on real estate purchases at current, strong prices. Conversely, Western and Central Washington dairies continue to be active participants in land markets. Milk prices have been below breakeven prices for some time, with no positive changes forecasted into the near future. Low milk prices have been partially offset by lower feed costs and input costs. Organic milk production and conversion to robotic milking systems are current trends throughout the dairy areas.

Read the Northwest FCS newslettter.


AgriBank: Dairy and livestock dealing with doldrums

Livestock and dairy margins continue to adjust downward from record levels of late 2014, according to a new report issued by AgriBank, the St. Paul-based Farm Credit Bank.

"After a strong finish to 2014 with record profit margins for many livestock and dairy producers across the board, 2015 was, for the most part, a transition year to the reality of lower margins," said Jeff Swanhorst, AgriBank executive vice president of credit and chief credit officer.

The record prices in 2014 were primarily the result of heavy exports of nonfat dry milk/skim milk powder to China combined with sharp demand for cheese and butter in the domestic market. In 2015, one of the legs of the three-legged stool was knocked out in that the powder export demand went away, and the dairy market depended on the domestic cheese and butter markets for support. In the first half of 2016, the dairy market will continue to need domestic cheese and butter to carry the markets in order to maintain producer profitability.

AgriBank is primarily owned by 17 affiliated Farm Credit Associations. Its district covers about half of all U.S. cropland, an area stretching from Wyoming to Ohio and Minnesota to Arkansas.

Read Livestock and Dairy Doldrums. PD

Dave Natzke