Wednesday, November 20, 2013

The End of the Farmland Price Boom

Following up on last Friday's "Chicago Fed 3rd Quarter 2013 Farmland Price Report".
Farmland is worth the cashflow it can generate. At $4.25 corn it is tough to cover input costs much less any carrying costs.
From Agrimoney:

US land price boom shows mounting signs of ending
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....MORE