Friday, December 20, 2013

"US land prices drop for first time in four years"

Following up on Tuesday's "Weighing the Odds of a Crash in Farmland Prices".
From Agrimoney:
US farmland prices have fallen for the first time in four years, undermined by weakness in agricultural commodity prices evident in a drop in wheat prices to 18-month lows this week, while corn stands near three-year lows.
A farmland price index compiled by Creighton University weakened to 47.0 this month, from 54.3 last month, and below the 50.0 level which indicates a static market.
."This is the first time in four years that the farmland-price index has moved below growth neutral," said Creighton economics professor Ernie Goss.
"As agriculture commodity prices have moved lower, so have farmland prices."
'Razor thin margins'
Indeed, the decline, the first since December 2009, comes amid growing ideas of the dent to farmers' spending power as grain prices fall well below historic highs
"If you haven't done so yet, get your pencil out on 2014 crop breakevens. Margins will be razor thin," Mike Mawdsley at Iowa-based broker Market 1 said.
Professor Goss said: "Over the past year, grain prices have declined by roughly 35%," adding that this decline has also "significantly reduced farmers' willingness to purchase agriculture equipment".
A farm equipment market index run by Creighton, which takes its data from states from Illinois to Wyoming, fell by 4.0 points month on month to 44.3, the lowest reading since August last year.
'Fasten your chin strap'...

The other index maintained by Creighton University is the Rural Mainstreet Index, which tracks the overall rural economy. The depressed prices for row crops--in particular corn-- and the just reported decline in land prices have not yet filtered out into the broader index. Here's the press release from the University:

Mainstreet Economy

Rural Mainstreet Economy Healthy for December:
Farmland Price Index Lowest in 4 Years

December Survey Results at a Glance:
  • Rural Mainstreet Index indicates rural economy expands at a healthy pace.
  • Farmland price index sinks to lowest level in four years.
  • Bank CEOs see rising regulatory costs as biggest threat to community banks for 2014.
  • Agriculture equipment sales decline for sixth straight month.
  • Bankers say low agriculture commodity prices are the biggest risk for the 2014 rural economy.
For Immediate Release: December 19, 2013

OMAHA, Neb. – Growth for the Rural Mainstreet economy climbed, according to the December survey of bank CEOs in a 10-state area.  

Overall:  The Rural Mainstreet Index (RMI), which ranges between 0 and 100, with 50.0 representing growth neutral, rose to 56.1 from November’s moderate 54.3.

“The overall index for the Rural Mainstreet Economy continues to indicate that the areas of the nation highly dependent on agriculture and energy continue to expand at a healthy pace. This month we asked bankers to name the biggest threat to the rural economy for 2014. Approximately 80.6 percent named lower agriculture prices to be the greatest economic threat in the next year while 10.6 percent said the Affordable Care Act was the biggest economic challenge for 2014,” said Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University....MORE