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Farm Values Dip

Saint Louis Fed ag survey shows farmland prices down for first quarter of 2014.

Farm income declined in the first quarter of 2014 (Q1 2014) relative to a year earlier, according to the latest Agricultural Finance Monitor, a newsletter published quarterly by the Federal Reserve Bank of Saint Louis. However, the decline appears less severe than respondents expected according to a previous survey.

The survey for the report was conducted March 17-March 31, 2014. The results are based on the responses from 49 ag banks within the boundaries of the Eighth Federal Reserve District. The district comprises all or parts of seven states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

Quality farmland prices fell slightly in Q1, a reversal of the gain reported in Q4 2013. Despite the decline, farmland prices still measured 7.5% higher compared to levels reported a year earlier. According to the survey, a majority of ag bankers continue to expect farm income and farmland values to decline during the next three months compared with year-earlier levels.

According to respondents, expenditures by farm households in Q1 2014 slightly exceeded spending levels from one year ago. However, similar to the situation with farmland prices, a majority of bankers expect both household expenditures and farm equipment expenditures for Q2 2014 to trend downward from year-earlier levels.

In contrast to the value of quality farmland, expectations for cash rents on quality farmland reflect a slight upward bias and even stronger expectations for cash rents for ranchland or pastureland during the next quarter.

The survey indicated demand for farm loans in Q1 2014 was notably higher than a year ago. Respondents expect higher demand for farm loans will continue in Q2, compared with year-earlier levels.

Survey respondents reported more funds were available to prospective borrowers in Q1 than at the same time last year, and adequate funds are expected to be available in Q2 2014.

This survey included one special question: Have expectations of lower farm income in 2014 changed lending competition in the highly competitive agriculture loan market?

Three of four bankers believe that the lower farm-sector-income expectation has had no change on lending competition. On the other hand, 16% responded that competition has indeed increased, while just 9% have affirmed some easing of lending competition. Overall, slightly better than 90% of responses indicate that, despite lower farm income expectations, lending competition remains as strong as, or stronger, in some markets than in previous periods.

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Editor's Note: This artivcle is from the Federal Reserve Bank of Saint Louis.

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