Crop and ranchland values declined 6% across the Central Plains through the third quarter of 2016, reports the Federal Reseve Bank of Kansas City. "A slow but steady rise in financial stress in the farm sector continued in the third quarter of 2016 as income in the sector remained low. Persistent weakness in both the crop and livestock sectors has caused producers to expend more working capital to meet short-term financial obligations. An ongoing decline in farmland values and cash rental rates has accelerated slightly under prolonged pressure from falling farm income," state report authors Nathan Kauffman, assistant vice president and Omaha Branch Executive and Matt Clark, assistant economist.
Ongoing weakness in the district’s farm economy in the quarter caused a more significant decline in farmland values, they state. The value of each type of farmland — nonirrigated cropland, irrigated cropland and ranchland — fell more than 6% from a year ago. The decrease in the third quarter was the sharpest year-over-year reduction in the value of each type of farmland throughout the district since the mid-1980s. However, they note the declines have remained relatively modest. "For example, the survey indicated irrigated cropland that might have been valued at $7,000 per acre in 2014, on average, would have been about $6,450 in the third quarter of 2016," they note.
Similar to farmland values, cash rental rates for both cropland and ranch land decreased in the third quarter, following a recent trend of sharper declines, they state. In the third quarter, cash rent for both irrigated and nonirrigated cropland was down nearly 10% from a year ago. The reduction in cash rents, the result of persistently weak profit margins for farm operations throughout the district, may represent a significant reduction in costs in the coming months at a time when revenue has remained relatively weak, they note.