Market News & Headlines >> Soft Landing Seen for Farmland Values
U.S. farmland values, which have been under pressure the last six months from falling grain prices, are likely to stabilize, the head of the Farm Credit Administration (FCA) told Reuters News Service on Wednesday.
“Based on what I’ve been reading I think it will be a soft adjustment and very manageable at least in the foreseeable future because farmers are in a very strong financial position,” said Jill Long Thompson.
“We have been anticipating for some time that there would be a stabilization, possibly an adjustment in farmland values particularly in areas where we’ve seen a pretty steep climb,” she told Reuters in an interview from her office in a Washington suburb.
“The lenders learned a great deal from overleveraging back in the late 1970s and early 1980s. We don’t have that high level of leveraging in farmland purchases.”
The FCA oversees the Farm Credit System (FCS), the government-backed network of banks which handles nearly half of all loans to U.S. farmers.
Quarterly surveys by regional Federal Reserve banks in the last six months have shown the red-hot demand for farmland that fueled record price gains over the last five years has cooled. Grain prices, led by corn, fell by 30% or more following bumper 2013 harvests of corn and soybeans.
The FCS, Long Thompson said, continued to benefit from disciplined lending to farmers for land and other purchases. The FCS said in February its 2013 earnings were at record levels once again. She said that balance sheets throughout the system’s more than 80 farmer-owned cooperative banks and associations were strong.
“Our data shows us that for the system it’s in a very strong position in terms of loan to value,” Long Thompson said.
Asked about the effects of rising interest rates on farming, Long Thompson said she saw little on the horizon to be seriously concerned about.
“I don’t think there is any indication that interest rates are going to increase dramatically in this calendar year,” she said. “We saw long-term rates go up last year about 100 basis points from the spring to early fall and stabilize. I don’t see anything in the economy that would indicate that we are going to see a dramatic increase. So I think everything will be manageable.”