The Federal Reserve branch located in St. Louis representing the 8th Federal Reserve District, recently published the results of its quarterly survey on agricultural credit conditions and general financial status for the 2nd quarter of 2014.
Quality Farm Land:
Overall, quality farm land values appear to have leveled off, or declined slightly, with a current value per acre of farmland across the 8th district of $5,473/acre. The survey shows land down modestly (0.5%) from quarter 1 of 2014 and down 3.5% from where land values were in the 2nd quarter of 2013. A large share of survey respondents expect quality farm ground to continue to decline in price over the remainder of 2014.
The 2nd quarter 2014 survey found the average sales price of pastureland across the district to be $2,313/acre. This price is down 7.5% from quarter 1 of 2014 and down 2.5% from the 2nd quarter of 2013. Like quality farm ground, expectations form survey respondents are that pastureland will decline further in the next quarter of 2014.
Despite the modest drop in the sales price of quality farm ground, cash rents increased from quarter 1 to quarter 2 of 2014 by 4.8% yielding an average rental rate of $191/acre. At the same, time rent for pasture land fell modestly from $62/acre to $59/acre. Overall, cash rental rates for the 2nd quarter of 2014 were higher than rental rates during the same period a year ago for quality farm ground, and slightly higher for pasture ground in the 2nd quarter of 2014 relative to the 2nd quarter of 2013.
There appears to be no consensus among those surveyed as to the direction of cash rental rates on quality farm ground for the remaining quarters of 2014. However, most believe that rental rates for pastureland will increase overall in the coming months.
The St. Louis branch of the Federal Reserve publishes quarterly reports on financial conditions pertaining to agriculture in the 8th federal reserve district which includes the northern half of Mississippi and the Delta Region. Surveys from around the region show fixed interest rates for operating loans averaging 5.39% on fixed loans and 5.01% on variable operating loans. Intermediate-term loan interest rates averaged 5.65% and 5.21% for fixed and variable loans respectively. Farm real estate loans averaged 5.23% and 4.93% for fixed and variable loans. The above interest rates were slightly higher than the same quarter a year ago where variable rates were between 4.48% for land and real estate and 4.77% for intermediate loans while fixed interest rates were as low as 4.87% for real estate loans and 5.45% for intermediate land and machinery loans.
Surveyed lenders expect demand for agricultural loans will be higher in 2014 than a year ago while also reporting ample quantities of loanable funds available to meet demand. Minutes from the March meeting from the Federal Open Markets Committee were released on 9-APR-2010 where members indicated that a push to increase interest rates will not occur until at least 2015. The implication of these two conditions are that agricultural loan interest rates will remain low for all three types of loans through 2014.
The latest forecast from the USDA Economic Research Service predicts a slowdown in the growth of overall farm wealth in 2014. Expectations are that overall farm debt will increase 2.3% while farm assets are expected to rise 2.4% yielding a net increase of 0.1%. This level of wealth generation in the agricultural sector is much lower than the 1.5% growth that ag. has enjoyed over the last 10 years. The decline in asset growth stems primarily from a decline in the growth in land values around the country, brought about by a slowdown in accumulation of agricultural land, and an expected decline in commodity prices.
Despite the slowdown in asset value growth, financial solvency is expected to continue its improvement moving to a national average debt-asset ratio of 10.5 in 2014 which is down from a modest spike of 11.8 in 2010, and the lowest it has been in about 60 years.
However, solvency measured using the debt-to-asset ratio is subject to change should land price fall.