The Federal Reserve Bank of Chicago just released their 2015 First Quarter Agricultural Newsletter, and their survey of agricultural bankers during this time period showed little change in the average price of good farmland across the six state region. Surprisingly, especially considering the current prices of corn and soybeans, over half of these lenders believed that land values would remain fairly steady throughout the second quarter of this year as well. The report noted that demand for farmland has been weakening the past several months, but it appears that the available supply is shrinking even more. This in turn has provided the necessary support to keep prices stable.
In my opinion, this quarter’s publication, which you can download by clicking here > Chicago Fed Ag Letter, contains a lot of additional information that may portend how land values will react later this year. On page 2, there is a graph that reflects the trend in cash rental rates. Across the district, rents decreased by 8% for 2015, which is the biggest annual average drop since 1987. This decline will likely impact what investors are willing to pay for land as they often have a benchmark rate of return that they must achieve before buying. On page 4, you will find a table of selected agricultural economic indicators that show the changes in commodity prices over the past two years, along with other data. This information may be the best reflector of how farmers’ income will be impacted in 2015. Finally, and probably the most positive news in the report, can be found in the credit conditions table on page 3. Yes, there has been mild deterioration in many of the ratios, but overall interest rates remain low and agricultural banks continue to be strong financially. Many lenders have become more proactive in their borrowing polices and they appear to slowing down the expansion plans for any of their high-risk borrowers.
All-in-all, I think this edition of the ag letter provides a good overview of what I’ve been seeing and hearing in the countryside. Grain prices remain a major concern for all, but many farmers are beginning to prepare now for the potentially volatile times ahead.