Farmland values from Nebraska to Oklahoma shows signs of stabilizing, reports the Federal Reserve Bank of Kansas City, halting the decline that started in 2015. This is according to the most recent survey of agricultural bankers conducted by the bank. While farmland values show signs of stabilizing, however, the bank notes farm and ranch financial conditions continue to erode. The Kansas City Federal Reserve Bank serves Kansas, Westerns Missouri, Nebraska, Oklahoma and the mountain states of Colorado, northern New Mexico and Wyoming.
The bank notes: "steady farmland values continued to provide support to farm finances amid an ongoing environment of weaker agricultural economic conditions. The values of all types of farmland (nonirrigated cropland, irrigated cropland and ranchland) remained similar to values a year ago. Although land values, on average, have declined since 2015, the decrease has been modest relative to the sharp increases in preceding years. Moreover, farmland values have shown some signs of stabilizing since 2018."
The survey found the value of dryland cropland rose a scant 0.1%, irrigated cropland rose 1% and ranch/pastureland values were unchanged versus a year earlier.
Percentage Changes in Farmland Values
The bank reports farm incomes continue to decline across the region and borrowers made additional cuts in spending as a result. Survey respondents report farm operators have reduced capital spending at a consistently faster pace than household spending; bankers indicated they expect that trend to continue. The banks states that ongoing reductions in farm income put further downward pressure on liquidity positions of crop producers. Working capital deteriorated at a modest pace throughout the district for the sixth consecutive year, but weaknesses were less severe than in prior years. About 75% of bankers reported that working capital of crop farmers deteriorated at least modestly in 2019, compared with over 90% in 2016.
"Steady deterioration of farm finances led to a modest amount of borrowers selling assets to improve liquidity. Similar to last year, about half of district bankers indicated they expect at least 5% of their borrowers to sell assets before year-end. Almost all survey respondents indicated they expect some borrowers to liquidate assets in coming months, a sign of broad impacts from persistent weaknesses in the sector and long-lasting pressure on farm finances," the bank observes. "On average across the district, about 10% of farm loan portfolios were on the watch list and about 6% were considered classified. The percent of farm borrowers on the bank watch lists was highest in Nebraska, while the classification rate was highest in Kansas," the bank states.