WASHINGTON (Reuters) — U.S. farmland values, which have been under pressure the last six months from falling grain prices, are likely to stabilize, according to the head of the largest U.S. farm lender.
“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.
Long Thompson heads the Farm Credit Administration, which oversees the Farm Credit System, the government-backed network of banks that handles nearly half of all loans to U.S. farmers.
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“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.”
Quarterly surveys by regional Fed 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 percent or more following last year’s bumper harvests of corn and soybeans. Those two crops account for almost 200 million acres of plantings each year.
Fed economists and bankers watch farmland as a gauge of the health of the economy. Falling crop prices have raised concerns land prices might also tumble, popping a farmland bubble similar to what happened in the 1980s, causing massive farm failures. Most farmer loans are collateralized by their land.
The next Fed surveys will be out in mid-May for the first quarter of 2014. A widely watched survey of land values in Iowa, the number one corn state, released in late March said farmland prices had eased about 5 percent since September, but the market tone was better than expected given the expectations for lower earnings from grain land.
The Farm Credit System, 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 mergers and consolidation seen in the system in the last year, Long Thompson said that these were essentially driven by local requests. The FCA will continue to review the merit of such requests, but with an expanded “checklist” of factors before approving them. The FCA held one-day symposia in January and February to review priorities standards for mergers.
“Congress recognized a number of years ago that consolidation was necessary to the safety and soundness of the system,” she said. “I don’t think that there is an ideal number of institutions. That changes as the dynamics in agriculture change. What’s important is that we do all we can to ensure safety and soundness and also ensure that the system is meeting its mission.”
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.”
