U.S. Midwest farmland values steady, weakness seen ahead -Chi Fed

[November 14, 2014]  CHICAGO, Nov 13 (Reuters) - U.S. farmland prices in the central Corn Belt states eased slightly in the July-September quarter, but stayed steady on year-ago levels as values held up despite the downturn in grain prices that accelerated with this year's record harvest, the Federal Reserve Bank of Chicago said on Thursday.

"The downturn in crop prices of the past two years finally extinguished the trend of rising farmland values that had prevailed in the District since the fourth quarter of 2009," the Fed said in its quarterly survey of bankers, noting that overall values fell 2 percent from the second quarter, but were unchanged from a year ago.

"Declines from a year ago in 'good' agricultural land values for Illinois and Iowa were offset by increases for Indiana and Michigan; meanwhile, Wisconsin farmland values remained the same."

Farmland prices are closely followed by Fed policymakers, bankers and farm suppliers - from equipment makers to seed dealers - since land is the basic collateral for most farm loans.

The district includes the heart of the corn and soybean production area in the United States, and is also a major producer of hogs, dairy, wheat and other commodities.

"The continuation of a dramatic decline in corn and soybean prices helped drive down farmland values across most of the District," the Fed said.

"Besides setting records for the District, 2014's harvest would set national records. However, the bumper crops only partially compensated for lost revenue from the plunge in crop prices, particularly for corn."

The bank said that of the 224 bankers surveyed, "56 percent of the survey respondents anticipated a decrease in farmland values in the fourth quarter of 2014 and only 1 percent anticipated an increase."

The continuing recovery of the livestock sector could not overcome the losses of the crop sector in most of the District, and could not prevent lower readings on farmland values in many places, the Fed said.

Heading into the fourth quarter - the key season for farmland auctions and later rent negotiations in the Corn Belt - the Fed said the amount of farm land put up for sale would be restrained.

"Forty-nine percent of the responding bankers predicted a decrease in the volume of farmland transfers relative to the fall and winter of a year ago, while only 11 percent predicted an increase," the bank said. (Reporting by Christine Stebbins. Editing by Andre Grenon)

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