Bryon Parman – Agricultural Economics

Have Land Values and Cash Rents Finally Stabilized?

Posted on August 22, 2014

The Federal Reserve branch located in St. Louis representing the 8^th Federal Reserve District, recently published the results of its quarterly survey on agricultural credit conditions and general financial status for the 2^nd quarter of 2014.

Quality Farm Land:

Overall, quality farm land values appear to have leveled off, or declined slightly, with a current value per acre of farmland across the 8^th district of $5,473/acre. The survey shows land down modestly (0.5%) from quarter 1 of 2014 and down 3.5% from where land values were in the 2^nd quarter of 2013. A large share of survey respondents expect quality farm ground to continue to decline in price over the remainder of 2014.

Pastureland:

The 2^nd quarter 2014 survey found the average sales price of pastureland across the district to be $2,313/acre. This price is down 7.5% from quarter 1 of 2014 and down 2.5% from the 2^nd quarter of 2013. Like quality farm ground, expectations form survey respondents are that pastureland will decline further in the next quarter of 2014.

Cash Rents:

Despite the modest drop in the sales price of quality farm ground, cash rents increased from quarter 1 to quarter 2 of 2014 by 4.8% yielding an average rental rate of $191/acre. At the same, time rent for pasture land fell modestly from $62/acre to $59/acre. Overall, cash rental rates for the 2^nd quarter of 2014 were higher than rental rates during the same period a year ago for quality farm ground, and slightly higher for pasture ground in the 2^nd quarter of 2014 relative to the 2^nd quarter of 2013.

There appears to be no consensus among those surveyed as to the direction of cash rental rates on quality farm ground for the remaining quarters of 2014. However, most believe that rental rates for pastureland will increase overall in the coming months.

A reduction in land prices stirs thoughts of a bursting bubble

Posted on June 11, 2014

A report by agrimoney.com show that farm land values have seen their first decline in nearly 5 years falling 1% in the first quarter of 2014. The decline was triggered by a substantial drop in grain prices at the end of 2013. In the south central plains, dryland prices declined 1.4% while irrigated crop ground increased at a modest 4.3%. In the corn-belt states such as Illinois and Indianan, price dropped by 4%.

At the same time, pasture land values have increased. Falling feed grain prices which have spurred the slowdown in crop land values have conversely improved profit margins for the cattle industry increasing the value of the product produced on pasture ground.

The questions on most farmers, ranchers, lenders, and economists minds during the recent run-up in land prices are: How high will land prices go, and will there be a bust similar to the 1980’s? Some economists believe that an agricultural land bust similar to the 1980’s will not happen. They cite crop insurance programs, who do a better job stabilizing revenue, as one reason such that lean years today won’t be as lean as years past. The other main reason is that the level of indebtedness has been reduced by farmers. Current reports show that, in aggregate, farms are not has highly leveraged today as in the 1980’s and the average farm has a higher buffer for times of financial hardship.

A repot by Allen Featherstone at Kansas State University acknowledges that farms in Kansas had an average debt to asset ratio much lower than in 1979. However, Featherstone points out that there is a higher percentage of farms in Kansas with a debt-to-asset ratio greater than 70% today than during the 1980’s bubble. The fact that more farms are highly leveraged today than before is critical according to the report since defaults typically occur within this group. Featherstone also points out that the bubble of the 1980’s was started by a significant drop in the value of farmland production over a two year period, and that a similar drop today over a similar period of time would not be substantially mitigated by price/revenue supports. Therefore, Featherstone concludes that it will not be leverage that will begin a bust cycle for land, but may increase the problem.

Agricultural Loans and Interest Rates 2014

Posted on April 10, 2014

The St. Louis branch of the Federal Reserve publishes quarterly reports on financial conditions pertaining to agriculture in the 8th federal reserve district which includes the northern half of Mississippi and the Delta Region. Surveys from around the region show fixed interest rates for operating loans averaging 5.39% on fixed loans and 5.01% on variable operating loans. Intermediate-term loan interest rates averaged 5.65% and 5.21% for fixed and variable loans respectively. Farm real estate loans averaged 5.23% and 4.93% for fixed and variable loans. The above interest rates were slightly higher than the same quarter a year ago where variable rates were between 4.48% for land and real estate and 4.77% for intermediate loans while fixed interest rates were as low as 4.87% for real estate loans and 5.45% for intermediate land and machinery loans.

Surveyed lenders expect demand for agricultural loans will be higher in 2014 than a year ago while also reporting ample quantities of loanable funds available to meet demand. Minutes from the March meeting from the Federal Open Markets Committee were released on 9-APR-2010 where members indicated that a push to increase interest rates will not occur until at least 2015. The implication of these two conditions are that agricultural loan interest rates will remain low for all three types of loans through 2014.

Growth in Overall Farm Wealth Expected to Slow in 2014

Posted on February 19, 2014

The latest forecast from the USDA Economic Research Service predicts a slowdown in the growth of overall farm wealth in 2014. Expectations are that overall farm debt will increase 2.3% while farm assets are expected to rise 2.4% yielding a net increase of 0.1%. This level of wealth generation in the agricultural sector is much lower than the 1.5% growth that ag. has enjoyed over the last 10 years. The decline in asset growth stems primarily from a decline in the growth in land values around the country, brought about by a slowdown in accumulation of agricultural land, and an expected decline in commodity prices.

Despite the slowdown in asset value growth, financial solvency is expected to continue its improvement moving to a national average debt-asset ratio of 10.5 in 2014 which is down from a modest spike of 11.8 in 2010, and the lowest it has been in about 60 years.

However, solvency measured using the debt-to-asset ratio is subject to change should land price fall.

Cash Rental Rates

Posted on January 14, 2014

Cash rental rates have trended upward throughout Mississippi in all four geographic/soil regions while share rental rates have remained relatively constant. However, cash rental agreements have become more common relative to share contracts as the number of share contracts have dwindled according to surveys conducted by Mississippi State.

Rental rates for corn producers have seen rate increases of around 25% since 2008 with the exception of the Hills Region which was about the same in 2012 as in 2008. Soybean producers have seen more modest increases in cash rental rates during the same period with the exception of the lower delta with a rate increase of 21%. Generally cotton producers are paying higher rental rates as well, especially in the hills region where rates were 75% higher than those in 2008.

Year/Region	2005	2006	2007	2008	2009	2010	2011	2012
	——Cash Rent Corn—–
Upper Delta	80.80	97.44	83.43	89.32	87.36	101.04	97.94	115.79
Lower Delta	70.19	89.23	85.73	95.95	116.82	111.19	112.31	118.46
Loam/ Lower Coastal	65.80	74.38	54.06	47.84	62.06	54.38	49.71	60.23
Hills Region	36.00	49.16	34.46	56.38	39.63	44.72	56.81	55.01
	——% Share Rent Corn——
Upper Delta	21.8	.	26.5	.	24.0	.	24.0	.
Lower Delta	.	20.0	25.0	20.0	23.3	.	20.0	20.0
Loam/ Lower Coastal	25.0	20.0	18.8	16.7	20.0	20.0	20.0	25.0
Hills Region	22.1	25.2	23.3	23.8	23.3	20.0	21.7	22.1



Year/Region	2005	2006	2007	2008	2009	2010	2011	2012
	——Cash Rent Soy—–
Upper Delta	61.60	62.80	63.04	73.04	77.08	89.44	92.69	70.27
Lower Delta	58.87	69.36	77.58	80.62	90.34	91.94	78.06	97.62
Loam/ Lower Coastal	43.43	58.25	50.45	50.25	45.74	55.16	56.42	54.00
Hills Region	37.37	28.75	34.28	39.44	37.55	41.42	36.11	41.42
	——% Share Rent Soy——
Upper Delta	25	25	25	22	25	25	25	25
Lower Delta	.	.	.	25	25	23	20	25
Loam/ Lower Coastal	24	23	24	20	20	20	23	21
Hills Region	22	24	23	22	23	34	22	20


Year/Region	2005	2006	2007	2008	2009	2010	2011	2012
	——Cash Rent Cotton—–
Upper Delta	85.96	97.44	79.68	94.46	85.36	93.33	109.21	105.75
Lower Delta	83.41	89.23	88.88	100.00	106.84	106.95	116.92	120.62
Loam/ Lower Coastal	71.93	74.38	66.94	75.00	77.50	87.50	89.85	71.25
Hills Region	51.66	49.46	41.42	49.00	42.50	58.57	69.35	85.90
	——% Share Rent Cotton——
Upper Delta	25.00	0.00	21.66	20.00	25.00	22.50	.	23.33
Lower Delta	.	20.00	.	.	20.00	20.00	.	21.66
Loam/ Lower Coastal	23.00	20.00	20.00	22.00	21.11	21.11	21.66	21.66
Hills Region	23.88	25.20	18.85	0.00	25.00	25.00	20.00	20.00

corn cotton and soybeans 7 year

While commodity prices have declined in 2013. Rental rates and land prices can be slow to react and expectations of higher prices in the future may continue upward pressure on prices or support rates from the previous year.

Cash/Share Rental Rates in Mississippi

Posted on October 24, 2013

Year/Region	2005	2006	2007	2008	2009	2010	2011	2012
	——Cash Rent Corn—–
Upper Delta	80.80	97.44	83.43	89.32	87.36	101.04	97.94	115.79
Lower Delta	70.19	89.23	85.73	95.95	116.82	111.19	112.31	118.46
Loam/ Lower Coastal	65.80	74.38	54.06	47.84	62.06	54.38	49.71	60.23
Hills Region	36.00	49.16	34.46	56.38	39.63	44.72	56.81	55.01
	——% Share Rent Corn——
Upper Delta	21.8	.	26.5	.	24.0	.	24.0	.
Lower Delta	.	20.0	25.0	20.0	23.3	.	20.0	20.0
Loam/ Lower Coastal	25.0	20.0	18.8	16.7	20.0	20.0	20.0	25.0
Hills Region	22.1	25.2	23.3	23.8	23.3	20.0	21.7	22.1



Year/Region	2005	2006	2007	2008	2009	2010	2011	2012
	——Cash Rent Soy—–
Upper Delta	61.60	62.80	63.04	73.04	77.08	89.44	92.69	70.27
Lower Delta	58.87	69.36	77.58	80.62	90.34	91.94	78.06	97.62
Loam/ Lower Coastal	43.43	58.25	50.45	50.25	45.74	55.16	56.42	54.00
Hills Region	37.37	28.75	34.28	39.44	37.55	41.42	36.11	41.42
	——% Share Rent Soy——
Upper Delta	25	25	25	22	25	25	25	25
Lower Delta	.	.	.	25	25	23	20	25
Loam/ Lower Coastal	24	23	24	20	20	20	23	21
Hills Region	22	24	23	22	23	34	22	20


Year/Region	2005	2006	2007	2008	2009	2010	2011	2012
	——Cash Rent Cotton—–
Upper Delta	85.96	97.44	79.68	94.46	85.36	93.33	109.21	105.75
Lower Delta	83.41	89.23	88.88	100.00	106.84	106.95	116.92	120.62
Loam/ Lower Coastal	71.93	74.38	66.94	75.00	77.50	87.50	89.85	71.25
Hills Region	51.66	49.46	41.42	49.00	42.50	58.57	69.35	85.90
	——% Share Rent Cotton——
Upper Delta	25.00	0.00	21.66	20.00	25.00	22.50	.	23.33
Lower Delta	.	20.00	.	.	20.00	20.00	.	21.66
Loam/ Lower Coastal	23.00	20.00	20.00	22.00	21.11	21.11	21.66	21.66
Hills Region	23.88	25.20	18.85	0.00	25.00	25.00	20.00	20.00

corn cotton and soybeans 7 year

The Return of Interest?

Posted on August 29, 2013

Interest rates as a percentage of annual agricultural expenses have continued to decline reaching a low of 2.4% for U.S. farms. This marks a decrease of nearly 56% in interest’s contribution to total agricultural expenses since 2002 when, on average, interest accounted for 5.4% of total operating costs. This is due in part to the fact that input costs such as seed, chemicals, fuel, ect. have risen swiftly, and high commodity prices have allowed greater percentages of new land and equipment purchases to be paid for with cash. Continue reading “The Return of Interest?”

Agricultural Economics

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Author: Bryon Parman

Have Land Values and Cash Rents Finally Stabilized?

A reduction in land prices stirs thoughts of a bursting bubble

Agricultural Loans and Interest Rates 2014

Growth in Overall Farm Wealth Expected to Slow in 2014

Cash Rental Rates

Cash/Share Rental Rates in Mississippi

The Return of Interest?

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