Friday, April 15, 2011

Kansas City Fed Reports on Farmland Sales in the Midwest

Rising farm incomes propelled farmland values higher at the end of 2010. Large year-over-year farmland value gains were seen across the Corn Belt and into the northern Plains, where energy production is booming. In fact, North Dakota enjoyed the strongest annual increase in farmland values largely due to land lease revenues from expanded oil production.

Crop producing regions such as Northern Indiana, Northern Illinois, Iowa, Nebraska and Kansas reported another round of robust farmland price increases in the fourth quarter. Cropland values, however, increased more modestly in the southern Plains as drought conditions threatened crop yields and limited cattle grazing. Even with slightly more farms for sale at the end of the year, strong demand from farmers and nonfarm investors kept bidding brisk and pushed values higher.

Bankers in the Chicago Federal Reserve District expected growth in farm real estate loan volumes relative to last year. Many Federal Reserve survey respondents anticipated that farm incomes and farmland values would rise further in the coming months. Overall demand for farm loans stalled in the fourth quarter with less borrowing for production expenses and an upswing in loans for capital purchases.

NOTE: See accompanying post showing map of percentage changes.

Several Districts noted a decline in operating loan demand as many farmers used income to pre-pay for crop inputs. In addition, bankers in the Chicago, Dallas and Richmond Districts reported fewer feeder cattle and dairy loans in the fourth quarter. Still, a majority of bankers expected operating loan volumes would rebound prior to spring planting. Federal Reserve surveys also noted a rush of machinery and equipment loans at the close of 2010 as farmers upgraded equipment and took advantage of new tax depreciation rules.

Farm credit conditions strengthened further as farmers paid off loans in earnest at year-end. According to Federal Reserve surveys, loan repayment rates at agricultural banks continued to climb and were markedly higher in the Chicago, Minneapolis, and Kansas City Districts. Moreover, loan renewals and extensions fell in all Districts but Richmond. Most bankers, but particularly those in the Chicago and Kansas City Districts, noted ample funds were available for loans, and very few loans were referred to non-bank credit agencies. Collateral requirements generally held steady or eased slightly. Interest rates trended down for both real estate and non-real estate loans.

source: Kansas City Federal Reserve Bank

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