Nebraska farm income fell in the second quarter, land values rose, and cattle, corn and soybean prices might be headed for a decline, the Federal Reserve Bank of Kansas City said Thursday.
Iowa land values also continue to rise, according to another report issued Thursday.
The Fed's 10th District agriculture credit survey, which includes Nebraska, follows a research paper from the K.C. Fed in March that warned of a bubble in farmland prices, or a cycle during which land prices rise while unsupported by the farm income required to pay the debt incurred to obtain the property.
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“Farm income prospects remained weak for the rest of the year throughout the District. Corn and soybean prices were expected to drop this fall if improved growing conditions in the eastern Corn Belt boost U.S. production,” the survey said. “Not only would lower crop prices reduce farm income, but persistent drought in parts of the district could limit yield potential, particularly in areas without irrigation.”
With lower expected prices and the possibility of a poor harvest, 208 responding banks in the survey expected 2013 farm income to be lower than last year's in each state in the 10th District, which is made up of Nebraska, Kansas, Missouri, Oklahoma, Colorado, Wyoming and New Mexico.
Nebraska farm income per operation was about $84,000, second in the nation, according to the USDA, and analysts have said a strong farm sector helped Nebraska weather the last recession better than most.
Bubble-watchers will be most interested in the split between the latest income trend and that of land values, which another Fed branch on Thursday reported also rose in Iowa during the quarter. Despite expectations of weaker farm income, farmland values in both states continued to set records.
In the second quarter, the value of irrigated Nebraska cropland jumped 25 percent from a year ago, the ninth consecutive quarter in which it rose more than 20 percent. Non-irrigated Nebraska cropland values were 18 percent higher than a year earlier. Annual gains in Nebraska ranchland values held steady at about 14 percent.
In Iowa, the Chicago Federal Reserve branch said Thursday, farmland prices rose 17 percent from a year earlier.
“I still would hesitate to say the word bubble yet,” said Nathan Kauffman, a K.C. Fed economist and the author of the 10th District's survey.
Kauffman said farmers are still well-off financially from several years of elevated corn and soybean prices and able to weather lower income. He also said that as crop prices fall, the income expectations for the land will drop, and therefore so will selling prices.
“The issue is, that all might take some time,” Kauffman said. “It is something to be mindful of.”
Among bankers anticipating a decline in farmland prices, a majority estimated they would fall by less than 10 percent during the next year. Very few bankers expected that farmland prices would drop more than 10 percent, the survey said.
In Nebraska, farmland values rose as follows in the second quarter, from a year earlier, according to the survey:
>> Non-irrigated, 14 percent, third-highest in the district.
>> Irrigated, 22.6 percent, fourth-highest.
>> Ranchland, 18.4 percent, highest.
The survey's income picture also was sub-optimal for ranchers in Nebraska, the second-largest beef producing state in the country.
“Ongoing weakness in the livestock sector also limited farm income growth as operators continued to endure high feed and forage costs combined with falling cattle prices.”
Futures prices for Nebraska's principal ag outputs ratify the responses bankers gave to the 10th District's questions on incomes:
>> The most actively traded corn futures contract on the Chicago Board of Trade has fallen about 35 percent so far this year, after the USDA predicted a 28 percent production increase to a record 13.76 billion bushels.
>> The most actively traded soybean futures contract on the exchange has dropped about 12 percent this year.
“Downward trends in futures prices for corn and soybeans reflected projections of a record corn harvest and the third-largest soybean crop on record for the nation, as concerns about late planting and lingering effects of the 2012 drought dissipated,” the Chicago Fed said in its report.
Farmers in the Fed's Seventh District, which includes Iowa, are facing the same pressures on corn and soybean prices as those elsewhere, the district's survey said.
“The anticipation of lower crop revenues — especially when combined with potentially rising interest rates on farm loans — portended softness in future farmland values,” the Seventh District survey said.