Farmland values begin to fall from record highs

Associated Press file photo

The price of farmland is starting to fall – after doubling since 2007 – and the number of non-performing farm loans is increasing, according to a Kansas State University survey of farm bankers across the country.

In the Agricultural Lender Survey, conducted in March and just released, lenders cited lower crop prices and rising operating costs as cutting into farmers’ profits.

Farmland values rise and fall with farm profitability, and for the last eight years, crop farming generally has been profitable.

In a dynamic reminiscent of last decade’s housing bubble, farmers were able to borrow large amounts of money based on their land’s inflated value to buy more land at inflated prices.

However, the loan payments on that borrowed money, might be unsustainable if their incomes fell.

Some worried that the big runup in land prices over the past 10 years could lead to a situation similar to the farm crisis in the 1980s. A drop in crop prices in the early 1980s, coupled with large amounts of farm borrowing at high interest rates, produced huge numbers of farm foreclosures and bank failures.

Or, it may mean that the farm economy will ease back into what was normal before land prices began to soar.

Conditions today are far different from the 1980s, with less farm debt, much lower interest rates and healthier export markets.

It’s too early to tell what will happen, said Allen Featherstone, professor and head of Kansas State University’s Department of Agricultural Economics, which conducts the survey every six months.

“A lot of it will depend on how quickly it happens,” he said. “If it gradually declines, the sector will be able to adjust fairly well. If it falls rapidly as it did in the 1980s, they won’t be able to keep up.”

So far, he said, farm ground prices appear to have dropped less than 10 percent from their peak last year.

How much further do they have? He said that if crop prices remain at about 2006-07 levels that implies land prices could fall another 25 to 30 percent.

In Kansas, Featherstone said, that would mean unirrigrated crop land might fall from a peak of about $2,000 per acre to $1,200 or $1,300 per acre.

Featherstone said it would take a year or two to really know how deep the problem is. Farmers, as a whole, have accumulated an enormous amount of cash from the profitable years and will use that to pay down debt before they get into trouble.

Greg Reno, regional vice president for American AgCredit in Wichita, confirmed that he has seen land prices starting to fall, but only slightly in south-central Kansas.

He said farmland prices generally have fallen 1.8 percent since last year. Crop land has fallen further than that, while pasture land has risen. Ranchers are enjoying great profitability at the moment.

He hasn’t seen any crop farmers running into trouble repaying loans, yet.

“We do know that margins are becoming compressed due to falling grain prices, we just haven’t seen the fallout from that as of yet,” he said.

Reach Dan Voorhis at 316-268-6577 or Follow him on Twitter: @danvoorhis.