Slump in Farmland Values Continues
By Cortney Cowley, Economist and Matt Clark, Assistant Economist- KC Fed
Fourth Quarter 2016 Farmland values and cash rents declined moderately in the fourth quarter of 2016. Bankers across the Tenth District noted that persistent weakness in farm income continued to weigh on farmland values. Although most farmland purchases in the quarter were financed with new debt, the portion of new loans with a cash down payment decreased. The persistent and widespread deterioration in farm income has occurred alongside increasing loan demand and lower repayment rates. These trends are expected to continue in the first quarter of 2017.
In the fourth quarter, most measures of financial stress in the farm sector ticked up. Bankers reported reduced farmland values, lower farm income and weaker credit conditions. To mitigate risk, Tenth District banks increased interest rates and collateral requirements. Although some bankers reported that record yields supported farm income in 2016, another round of above-average yields could contribute to higher stocks, which are correlated with lower commodity prices and depressed repayment rates. Looking to 2017, bankers indicated that a decline in cash rents may provide some relief, but they still expect farm income to remain subdued.
Source: Federal Reserve release