18 11월, 19:03www.agrimoney.com
The boom in US farmland prices showed increasing signs of reaching a close, with the pace of appreciation slowing over the summer, and some lenders tightening credit criteria in expectation of less lucrative times.
Farmland prices continue to show healthy growth on a year on year basis, with prices rising by 18% in the major Corn Belt state of Indiana in the July-to-September quarter, compared with a year before, and by 21% for irrigated land in Kansas, the top wheat-growing state, central bank data show.
Despite weaker farm profits, a reflection of sliding crop prices, with corn values trading near three-year lows, "growth in district cropland values was only slightly lower than the previous two years," according to the Federal Reserve's Kansas City bank, which covers states including Kansas, Nebraska and Oklahoma.
However, these figures disguise significant slowdowns in the latest quarter, with irrigated land in the bank's region rising by 0.9% from the April-to-June period.
That is equivalent to 3.6% on an annualised basis, well below the 22% actually reported for year-on-year growth.
'Stark differences'
The data follow a report from the Fed's Chicago bank which showed prices rising by 14%, year on year, during the quarter in its district, which includes the major Corn Belt states of Illinois, Indiana and Iowa.
However, the rise quarter on quarter was just 1%, with prices falling in Iowa � the top US corn and soybean producing state � by 1%, the first decline in four years, albeit one hastened by unusually dry conditions which hurt yield prospects.
"The return of drought seems to temper the year-over-year gain in Iowa farmland values," the Chicago Fed said.
And the slowdown in land price rises looks set to continue, showing "stark differences" to the rises that farmers have got used to, as lower crop prices reduce the appeal of farmland investment.
'Reversal of fortunes'
A survey of lenders by the Chicago Fed showed only 4% expecting higher values in the current, October-to-December quarter, well below the 21% expecting a decline in values, although 75% forecast a flat market.
In the previous survey, published in August, the proportion of bankers expecting rising and falling farmland values was level, at 7%.
"The respondents' expectations tended to indicate a reversal of fortunes for farmland values," Chicago Fed senior business economist David Oppedahl said.
"While district farmland values increased on the whole in the third quarter of 2013, this upward trend was not expected to continue."
'Gradual decline'
At the Kansas City Fed, Nathan Kauffman and Maria Akers said tGhat "while most bankers surveyed expected farmland values would hold steady, some indicated farmland values could begin a gradual decline as 2014 approaches".
And the bank flagged the continued outperformance of land values, compared with cash rental rates, as "highlighting the potential for a future adjustment in farmland values".
The ratio of, non-irrigated, land had reached 27 times the rental value, well above historic rates of less than 20.
Indeed, the bank compared the figure to the "analogous" price-to-earnings ratio on US equity markets, which for S&P 500 shares stands at 18.
'Collateral requirements tightened'
Already, lenders, receiving "more requests for loan renewals and extensions", had responded to the more downbeat outlook for land prices by tightening lending criteria, and lowering loan-to-value ratios for farmland borrowings, the Kansas City Fed said.
In the Chicago Fed district too, Mr Oppedahl said that "collateral requirements for loans tightened in the third quarter.
"Heading into the fall and winter, survey respondents sensed a shift in agricultural credit conditions. Loan repayment was anticipated to worsen."
However, there are some signs that, while lower crop prices weigh on arable land values, they could offer support to ranchland prices, in boosting profitability prospects for livestock farmers.
The Kansas City Fed noted that in Oklahoma, "more bankers reported a modest rise in farm income, noting that lower crop prices reduced feed costs for the livestock sector".
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