The Housing Bubble

A report from the Wall Street Journal. “The Farm Belt is hurtling toward a milestone: Soon there will be fewer than two million farms in America for the first time since pioneers moved westward after the Louisiana Purchase. Across the heartland, a multiyear slump in prices for corn, wheat and other farm commodities brought on by a glut of grain world-wide is pushing many farmers further into debt. Some are shutting down, raising concerns that the next few years could bring the biggest wave of farm closures since the 1980s. A decade ago, a U.S. biofuel boom and China’s growing middle class lifted prices for crops like corn and soybeans. Many American growers spent the windfall buying land and half-million-dollar equipment.”

“The boom also encouraged farmers in other countries to ramp up production. Farmers world-wide put nearly 180 million new acres into cultivation over the past decade. Corn and wheat output has never been higher, and never has so much grain been bunkered away.”

“In Great Bend, 80 miles east of Ransom, Les Hopkins recently sold his John Deere dealership after sales all but stopped. He is owed about $100,000 by farmers who financed machinery purchases they haven’t paid off. He has tried tracking them down by calling from cellphone numbers they won’t recognize. ‘That money is gone,’ he said.”

“The motor on David Radenberg ’s tractor gave out last fall as he sowed wheat on his family’s 2,400 acre farm in Claflin, 90 miles east of Ransom. He didn’t have the money to fix it. ‘You want to cry when you find out how much it costs,’ he said. He decided to sell the tractor for $10,500 and rely on an older model. If grain prices remain weak, the farm could be next. After 30 years farming, this crop could be his last: ‘Do I go work at Wal-Mart as a greeter or as a parts man at the mechanics shop?’”

From Southeast AgNET. “Farmland values continued to wane in the fourth quarter, according to the Tenth District Survey of Agricultural Credit Conditions. On average, nonirrigated and irrigated farmland values dropped 6 percent, and ranchland values fell 7 percent from the same period last year. These downgrades were the largest since the Great Recession of 2007-09 but were relatively small compared to declines in the 1980s. The largest changes in District states occurred in Kansas and Nebraska. The value of nonirrigated farmland fell 13 percent in Kansas, and irrigated farmland in Nebraska was 8 percent lower. Decreases in ranchland values in Kansas, Nebraska and Missouri were the largest since 2002.”

“After falling steadily for several quarters, cash rents in the fourth quarter were down sharply from their peak values. In the Mountain States, for example, cash rents on non-irrigated cropland have fallen 40 percent from their peak in the fourth quarter of 2012 to the fourth quarter of 2016.”

“Farm income also weakened in the fourth quarter. In fact, farm income fell for the fifteenth consecutive quarter, the longest such streak in survey history. Moreover, 70 percent of bankers expected the downward trend to continue in the first quarter of 2017. Capital and household spending extended declines to 15 and 10 consecutive quarters, respectively.”

The Tama News-Herald. “The trend to lower land prices across Iowa and in Tama County continued for the third year running in the 2016 Iowa State University Farmland Value Survey. The survey showed an average value of $7,455 per acre average in 2016, down from $7,985 or a drop of 6.64 percent. State-wide, the average price in 2016 was found to be $7,183, a 5.89 percent drop. The survey notes the amount is based upon low, medium and high priced ground.”

“Over the years, Tama County land values have increased 54 in the past 66 years. Farm ground price has risen in Tama County every year since 1999 except in 2009 and the past two. It hit a peak in 2013 at $9,145 per acre.”

From Ag Week. “Farmland values and cash rents declined moderately in the fourth quarter of 2016, according to the Federal Reserve Bank of Kansas City’s Agricultural Credit Survey. Credit conditions also weakened alongside lower farm income, and bankers have adopted some risk prevention measures in response. For example, variable and fixed interest rates increased for all types of farm loans. More than 30 percent of bankers also reported an increase in collateral requirements, the largest share in survey history.”

From the Independent. “More than 77 percent of Nebraska producers are concerned that they may not be able to obtain operating capital in 2017, according to the 2016 Farm Financial Health Survey conducted by the University of Nebraska-Lincoln’s Department of Agricultural Economics. ‘Demand is on the rise for operating loans, which is leading to some difficult conversations between producers and their bankers,’ said Jessica Groskopf, assistant extension educator with Nebraska Extension.”

“She said low commodity prices have resulted in the fourth consecutive year of declining net farm income, or the return that farmers and ranchers get for their input of labor, management and capital. The decline has forced producers to use cash reserves to service debt and pay for non-farm expenses such as family living that now exceed earnings. This reduces the operation’s ability to make debt payments, which makes it more difficult for banks to approve operating loans.”

“According to Nathan Kauffman, assistant vice president and Omaha Federal Reserve Branch executive, and Matt Clark, assistant economist at Kansas City’s Federal Reserve Bank, farm lending activity at commercial banks slowed significantly in the fourth quarter as lenders and borrowers assessed economic prospects for 2017. Despite persistent increases in the level of outstanding farm debt and ongoing demand for loan renewals, they said new loan originations dropped sharply.”

“Because the outlook for farm income has remained weak and farmland values continue to decline, both lenders and borrowers may have been more apprehensive about adding new debt heading into 2017, they said. The sharp reduction in the volume of new farm loans at commercial banks occurred during a prolonged decline in farm revenue, Kauffman and Clark said.”

“In 2016, prices for most agricultural commodities continued to fall, building on the declines of previous years, with soybeans being a notable exception. A 30-percent, year-over-year drop in the price of feeder cattle helped reduce the cost of purchasing the animals and likely contributed to the sharp reduction in loan volumes in the livestock sector.”