Farmland values increased year-to-year for the 11th consecutive quarter in the southern Midwest. The Eighth Federal Reserve District released the agricultural credit conditions for the fourth quarter 2014, reporting quality farmland values increased 0.8% compared to values a year ago. The Eighth District includes portions of Arkansas, Illinois, Indiana, Kentucky, Missouri, and Tennessee.
Cash rent values for farmland also increased in the fourth quarter 2014 from a year ago. After a decline in cash rents in the third quarter 2014, bankers reported a 3.6% increase across the southern Midwest. Despite falling grain prices, farmers remained aggressive in cash rent offers in an attempt to grow their operations.
Bankers reported that due to the fall in grain prices, farm income decreased in the fourth quarter 2014. The decline was less rapid than what was reported in the third quarter increasing from 76 to 78 and fourth quarter results beat their expected index value by 37 points coming in at 78. Despite the decline, farmer income in 2014 was still the third highest in the history of the U.S.
For the first quarter of 2015, bankers are expecting farmland values, cash rents, and farm income to decline slightly. Grain prices are forecasted to remain stable over the period as the U.S. continues to digest the record setting amount of corn and soybeans produced in 2014. Inputs costs, which farmers are currently negotiating prices for, have remained high, which has also dampened the outlook.
Credit Conditions
Bankers remain confident about credit conditions across the district despite the decline in grain prices. Availability to funds reportedly increased in the fourth quarter of 2014 from a year ago and bankers expect that to increase into 2015. Other agricultural areas have suggested their fund availability will tighten in 2015 in response to falling grain prices. The suggestion that funds are available and are expected to remain available into 2015 is a good sign.
Loan demand was higher in the fourth quarter 2014 from a year ago, and bankers believe that demand for loans will remain the same into 2015. The increase in loan demand speaks directly to lower farmer income and the need to obtain more operating credit to fund the crop in 2015.
Outlook
The District outperformed neighboring areas in the fourth quarter of 2014, but the banker outlook in early 2015 is beginning to turn slightly negative. The increasingly difficult grain price environment continues to concern operators as prices remain suppressed by the glut of corn and soybeans produced in 2014. Increased demand from global buyers has helped increase prices from multi-year lows in late 2014, but prices still remain well below those seen over the past three years.
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