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  • Unconventional Ag

Farmland Values Fall in Majority of Central U.S.

As further evidence that the three year long slump in commodity prices for soybeans and grains is negatively affecting farm incomes and the overall U.S. agricultural economy, farmland prices fell across the majority of the U.S. Midwest in the first quarter of 2015, according to two Federal Reserve reports.

The value of irrigated farmland in the Federal Reserve District of Kansas City, which includes Kansas, Nebraska, and Colorado fell by 2.1% in the first quarter year over year – the first year over year quarter decline in more than five years, while farmland of all types declined from the fourth quarter of 2014.

In the St. Louis Federal Reserve district, which includes Illinois, Kentucky, and Arkansas, values of “quality” farmland fell by 2.5% year on year in the first quarter. In addition, in February, the U.S. Department of Agriculture (USDA) estimated that net U.S. farm income will fall to $73.6 billion - down from $108 billion last year, and the lowest income since 2009. Local lenders are forecasting that this lower farm income will further depress land values, household spending, and capital expenditures going into the second quarter.

After being supported by soaring crop prices over the past decade due to drought and high crop demand from the ethanol industry and foreign buyers, these recent reports reinforce evidence of the continued slowdown in the U.S. agricultural economy.

Beginning in 2013, U.S. farmers produced two consecutive years of record breaking corn harvests, while in 2014 produced the largest-ever soybean crop, helping to put an end to the most successful decades for U.S. grain farmers in history. After reaching record highs in 2012, futures prices for corn have fallen by 60%, and soybean prices have fallen by almost half.

“Grain prices will likely remain in this price range for several years and will have a huge impact on lenders,” stated an Illinois banker in Thursday’s St. Louis Fed report, reports the Wall Street Journal.

Looking to the future, more than 25% of survey respondent bankers expect farmland values to decline even further in the next quarter.

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