Farm real estate strength provided support to the agricultural sector during the fourth quarter of last year amid ongoing financial challenges, the Federal Reserve Bank of Kansas City said in a release.
According to the Tenth District Survey of Agricultural Credit Conditions, nonirrigated cropland values and cash rents increased slightly in the quarter. Credit conditions in the District remained weak, but deteriorated at the slowest pace in more than four years.
Despite some signs of stabilization, geographic disparities persisted, the bank said. Land values were stronger on the eastern side of the district, while farm income and credit conditions were weaker in the west.
Bankers told the Fed that 2019’s trade relief payments provided support to farm finances, but many also indicated that underlying weaknesses in the sector continued to be driven by low agricultural commodity prices.
FARMLAND VALUES AND CASH RENTS
Farmland values increased slightly in the fourth quarter, and cash rents remained stable, the bank said. Nonirrigated farmland values trended higher at a modest pace in 2019 and increased 4% in the fourth quarter.
Cash rents have trended lower since 2017 but increased slightly at the end of 2019, the survey showed. In the fourth quarter, cash rents were 2% more than year-ago levels.
Lower interest rates and reduced borrowing costs may have contributed to recent strength in the district’s farmland values, the bank said. Interest rates declined 10 basis points in the third quarter of 2019 compared with the previous year.
In the fourth quarter, fixed and variable interest rates for loans to finance farmland purchases declined 42 basis points from the previous year, the bank said.
Demand for farmland remained strong in the fourth quarter, which also could have supported farmland values, the bank said. The share of farmland purchased by farmers since 2014 has declined from 81% to 74% but remains elevated by historical standards.
Adding to the slow pace of decline, farmers continued to purchase a majority of farmland sold in the District, the bank said.
STRONG DEMAND, LOW INTEREST RATES
In addition, strong demand and lower interest rates may have contributed to higher expectations for farmland values in 2020, the bank said. For the first time since 2014, more bankers expected farmland values to remain steady or increase, compared with those that expected farmland values to decline.
Although 37% of bankers expected farmland values to decline somewhat, half expected no change, and 14% expected farmland values to increase moderately in 2020.
However, some risks remained in the outlook for farmland values, as the volume of farmland sales increased for the first time in several years, the release said. The volume of farmland sales increased or remained the same in all states.
Throughout the downturn in the Tenth District’s farm economy, a persistently low volume of land sales contributed to stable farmland values, but increases in sales could pressure values moving forward.
CATTLE, BEEF RECAP
Cash cattle trading took place in the Plains last week at $118 to $121, mostly $119, per cwt on a live basis, steady to down $2 from the previous week. Dressed-basis trading was at $190 to $191, down $2.
The USDA choice cutout Tuesday was down $1.13 per cwt at $206.13, while select was off $2.45 at $203.73. The choice/select spread widened to $2.40 from $1.08 with 86 loads of fabricated product sold into the spot market.
Six heifer futures contracts were tendered for delivery Tuesday.
The CME Feeder Cattle index for the seven days ended Monday was $141.19 per cwt, up $0.47 from the previous day. This compares with Tuesday’s Mar contract settlement of $139.30, up $0.77.