The combination of government payments and rising commodity prices during the third quarter has tempered declines in farm incomes and firmed farmland values across the Central and Southern Plains. That is according to the survey of agriculture bankers in Kansas, western Missouri, Nebraska, Oklahoma and the Mountain States of Colorado, northern New Mexico and southern Wyoming conducted quarterly by the Federal Reserve Bank of Kansas City.
The bank reports: “About 55% of agricultural bankers throughout the district reported lower incomes than a year ago, compared with 75% in the second quarter. Recent developments also led to more optimistic expectations about changes in farm income through the end of the year.
The slower decline in income was consistent across all states in the district while prospects for farm borrower liquidity also improved from the previous quarter, the bank notes. “The pace of decline in income and liquidity was slower than the previous quarter in all states. The sharp deterioration in farm finances in the second quarter subsided most notably in Kansas and Oklahoma. The financial outlook for producers was most optimistic in western Missouri, where 40% of respondents indicated they expected liquidity would be higher than the same time a year ago and 50% expected farm incomes to be higher,” the bank says.
The bank continues: “Alongside a better outlook for farm income in 2020, most measures of credit conditions also deteriorated at a more gradual pace in the third quarter. About 20% of respondents reported a decline in loan repayment rates, compared with about 35% in the previous two quarters and 30% the same time a year ago. Repayment challenges were expected to ease across all types of farm operations in the next three months and improve slightly among row crop farmers and cattle producers.”
Interest rates and Farmland Values
The bank observes that variable rates on operating loans and fixed rates on farm real estate loans reached historically low levels and provided support to farmland values in the third quarter. The value of nonirrigated cropland and ranchland increased 3% from a year ago and nonirrigated farmland also increased slightly for the second straight quarter.
The stability of farm real estate values was consistent across all types of land in a majority of states, the bank observes. “On average across all types of farmland, values increased from a year ago in all states expect Nebraska. The average increase was over 5% in Oklahoma and western Missouri and less than 5% in the Mountain States and Kansas,” it says.
Farmland Values by State and Type