MANHATTAN – Nationally, there seems to be an on-going softening in farm values, However, that may not be the story closer to home.
Agricultural lenders reported decreased farmland values and increases in non-performing farm loans, according to an Agricultural Lender Survey. Conducted by the Kansas State University Department of Agricultural Economics in March, this showed a continuation of a trend witnessed in the end-of-year survey conducted in 2014.
But, “the past four to five years have seen large gains in farm real estate values locally,” said Paul Snapp, president of First Kansas Bank in Great Bend. “These gains were driven by high farm commodity prices, good profitability and low interest rates.”
In addition cash from local oil production helped drive farmland prices up, he said. The drop in commodity prices over the past two years has squeezed profitability for farmers and land owners.
“Most local producers are in very good financial shape,” Snapp said.
Statewide, he said the picture may be different. “I believe most farmland owners and farmers are hesitant to buy land at current prices because they want to conserve their cash and limit new debt obligations. I’m not surprised that Kansas farmland prices would soften given local economic realities.”
In the meantime, Snapp said First Kansas Bank doesn’t have any non-performing loans. “Given the financial strength of most local farm producers I would expect non-performing loans to remain low in the agricultural sector.”
Looking at the country as a whole, “for the first time since we began this survey, the majority of respondents thought land values declined,” said Allen Featherstone, professor and department head of the K-State Department of Agricultural Economics. Additionally, he said long-term expectation also pointed to declines in land values.
Researchers pointed to uncertainty in the markets regarding interest rates and competition amongst the lenders as some of the long-term factors in the results, which still showed a strong credit market for producers. Lenders cited lower commodity prices, rising operating costs and the softening of cash rents. Combining these with a decrease in farmland prices created concern in the long-term financial health of the farming sector.
However, in reference to the increase in non-performing loans, Featherstone said he believes the market is just cycling back to a normal state. The study indicated a stronger market of loan availability in the agricultural market, which would benefit producers in the future. Research shows that bankers are still interested in agricultural investments, but experts say the farmers are going to have to show a strong investment plan.
“Producers are going to encounter cautious lenders,” Featherstone said. “Farmers will have to be well-prepared and document plans going forward to continue to access credit at good rates.”
The Agricultural Lender Survey included 39 lending institution responses. Lenders in the survey considered five key areas: farm loan interest rates, spread over cost of funds, farm loan volumes, non-performing loan volumes and agricultural land values.
Various K-State Department of Agricultural Economics researchers developed and conducted the survey, including Brady Brewer, recent doctoral graduate; Brian Briggeman, associate professor and director of the Arthur Capper Cooperative Center; Allen Featherstone; and Christine Wilson, professor.
For more information about the outlook for agricultural credit conditions and commentary on areas of concern within agriculture, go to the K-State Agricultural Lender Survey ageconomics.k-state.edu/research/ag-lender-survey/index.html.
