Alan Guebert: Tiring bulls
Opinion | June 10, 2013
The mild winter affected U.S. farmland values only mildly. Summer, however, may cool ‘em.
According to the much-followed Seventh Federal Reserve District quarterly land survey – a poll across 219 ag bankers in Iowa, Michigan, the southern two-thirds of Wisconsin and the northern two-thirds of Illinois and Indiana – first quarter 2013 land values in the region rose a “moderate” four percent, a “smaller increase than that of the previous survey.”
Year-to-year, however, land prices across the heart of the Midwest are up a solid 15 percent. Illinois posted a hot 19 percent increase from April 1, 2012 to April 1, 2013, Iowa a red-hot 20 percent increase and Michigan a white-hot 24 percent.
The Fed survey contained two more vitamin-packed facts for land bulls to chew on. (http://www.chicagofed.org/webpages/publications/agletter/index.cfm)
First, according to the Chicago-based data crunchers, “(T)he number of farms sold, the amount of acreage sold, and the amount of farmland for sale rose during the winter and early spring of 2013 compared with a year ago.”
Is this an aging, second and third generation off-the-farm inheritors cashing in on the very fast doubling and tripling of farmland prices?
Probably, but the Fed survey doesn’t track the sociology of sellers.
The other number is land rents, something the Windy City Fed does track. Cash rents continue to climb for corn and soybean ground; up 11 percent from 2012. “…(W)hen adjusted for inflation … this result was the fourth-largest in farmland cash rental rates in the history of the survey.”
That’s a 70-year history. Wow.
Not all Federal Reserve banks spent spring posting spring-like numbers.
The latest survey of ag bankers in the Fed’s Eighth District, a region that takes in all or parts of seven states from St. Louis to Memphis and Little Rock to Louisville, “Surprisingly report(s) quality farmland, ranchland, or pastureland prices are down slightly …”
According to district numbers, farmland values fell 2.3 percent across the region in the first three months of 2013 while “cash rents of quality farmland declined an average 8.6 percent.” Pastureland prices were down 5.1 percent, too, and pasture rents “reportedly fell an average 4.5 percent.”
The drop, according to the district’s quarterly Agricultural Finance Monitor, (http://research.stlouisfed.org/publications/afm/2013/afmq1.pdf) had more to do with economic perceptions than farm and ranch facts.
Almost every financial measure across the region – loan repayments, farm income, capital expenditures, household spending – “all surpassed expectations” but “rising input costs” and a nervous feeling of an overall “weak economy” has farmers and cattlemen from Hannibal to Vicksburg letting some air out of land prices.
Their concerns are warranted on one front: Farm Bill writers continue to haggle over how to satisfy cotton and rice farmers in legislation that, to date, is heavily tilted toward Midwestern corn and soybean producers.
A glance westward, however, shows that when the red-handkerchief bullishness of the Seventh District meets the flashing yellow caution of the Eighth District, the powerful bulls continue their trot higher.
Land prices throughout the Tenth Federal Reserve District, a huge region based in Kansas City that includes farm and ranchland from western Missouri through Colorado and Wyoming to New Mexico, prove it.
According to the Kansas City bank’s most recent ag credit survey, climbing input prices, “dampened crop prices” and “high feed and forage prices” have slowed land values a bit. Prices for “non-irrigated and irrigated cropland rose 3.4 percent and 2.9 percent respectively” during the spring.
Year-to-year comparisons, however, are out of sight: non-irrigated cropland up 19.3 percent from a year ago, irrigated land up 21.5 percent and ranchland up 14.3 percent. (http://www.kansascityfed.org/research/indicatorsdata/agcredit/index.cfm)
Still, quarterly ag credit surveys from Denver to Louisville, Chicago to Memphis, clearly show a slowing, a nervousness, of land’s swift, upward climb. Even strong bulls, it seems, tire.
And until the hard facts of 2013 – commodity prices, the pending Farm Bill, actual planted acres – catch up with its soft hopes, expect more nervousness.
© 2013 ag comm