Hints of a Bottom in Central Corn Belt

Data from three Midwestern Federal Reserve Banks suggests farmland values might be stabilizing. No trends have been confirmed, but the data aligns with our view of the Midwestern land market.

The Federal Reserve Bank of Chicago offers the first uptick in farmland values in years, with “good-quality farmland” increasing 1% versus a year earlier. Illinois and Indiana values dropped 3% and 1%, respectively. But Iowa is up 3% and Wisconsin is up 1%—a significant move because Iowa was the first state to turn lower in late 2013.

 

The St. Louis Fed reports quality farmland in the Southern Corn Belt slipped less than 1%, which follows a similar slim decline the previous quarter. This is not a confirmation of a bottom, but it suggests market steadiness. Stabilization is the first stage in marking a low.

The Plains states continue to show weakness, however. This is understandable as wheat prices have been under heavy pressure. With market channels glutted the world over, it could take several more years for values in the Plains to halt their decline.

Silver Lining. Positive signs exist. The number of farms for sale is limited, which props up the market. And rural bankers report a slowing in the deterioration of financial conditions of their farm customers. This suggests farmers and lenders have adjusted to the sharp decline in net farm incomes and are cautiously optimistic they can work through repayment issues without forced sales of farmland. This is good news, as the absence of a glut of stress-farm sales allows the market to work through the current negative profit picture.

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This is the picture I painted at this summer’s Pro Farmer Leading Edge Conference. Market conditions are ripe for working through on-going financial strains assuming:

  • Interest rates do not spike.
  • Net farm income does not fall sharply lower.
  • Farmers hold the line on adding additional debt.
  • Lenders stick with cash-flow lending rather than collateral lending.

The latter factor was key in the price run up. Lenders were restrained on collateral lending during the rise and are now in a position to work through financial issues with their clients. That’s why we do not see a rash of forced sales. Instead we see the market as steady to slightly weaker through 2018 and possibly in 2019 followed by normal 4% annual gains.

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