May 20, 2015

The Wall Street Journal reports that farmland values fell across the U.S. Midwest region in the third quarter as a direct result of three years of declining crop prices, according to a report issued by the Federal Reserve issued November 12.

In the St. Louis Federal district, which includes parts of Illinois, Indiana, and Missouri, the average price of ‘quality’ farmland fell by 2.6% year on year as farm incomes continue to decline.

In the Chicago Federal district, which includes Iowa and Illinois, farmland values during the third quarter remained steady with values in the third quarter a year before, and increased by 1% compared to second quarter values this year.

In the Kansas City Federal district, which includes Kansas and Nebraska, irrigated farmland values fell by 1%, while non-irrigated farmland values increased by 0.4%, according to the bank.

Over the past decade, crop prices saw steady increases, driven up by drought and increased demand for grain from the ethanol industry and overseas markets, which in turn supported higher demand for farmland and higher farmland values.

This season however, U.S. farmers are harvesting what will be their third consecutive year of bumper soybean and corn crops, adding to global markets that are already awash in high inventories, and pushing down prices which have already fallen by half since 2012.

“Because of some concern about the fall harvest and the recent dip in livestock prices, agricultural bankers have a rather dour view of farm income prospects in the fourth quarter of 2015,” the St. Louis Fed said in its report on Thursday, reports the Wall Street Journal.

Farmland values in Iowa and Illinois, the country’s top two corn producing states, saw declines year on year, although these setbacks were offset by higher farmland values in Wisconsin and Michigan.

However, both the Kansas City and Chicago Federal districts state that the financial outlook for farmers softened in the third quarter, reflected in the drop in loan repayment rates, which are expected to fall even further as the year comes to a close. Indeed, an index of repayment rates for loans excluding real estate in the Chicago region could fall to its lowest point since 1999, according to David Oppedahl, senior business economist at the Chicago Fed. The situation could also put more farmers that are facing financial challenges in the position of having to sell off assets within the next three to six months.