Farmland values increased slightly in the first quarter of according to the Federal Reserve Bank of Minneapolis’ quarterly Agricultural Credit Conditions Survey. Despite the stabilization in farmland values, the outlook is negative for agricultural producers as farm income is expected to continue to decline through 2009.

Some highlights from the quarter’s report include:

·         Farm income, capital expenditures and household spending all decreased

·         58% of respondents reported a decrease in farm income, although 22% of Minnesota respondents reported higher farm income

·         Milk prices have fallen well below break-even levels

·         22% of lenders increased collateral requirements on loans

·         Fixed & variable interest rates dropped

Perhaps the most interesting numbers pertain to cash rent and land values. The average cash rent for nonirrigated farmland increased by 6%, irrigated 7% and ranchland 8%. As for land values; ranchland remained unchanged, nonirrigated increased 1% and irrigated increased 3%.

What does this mean for farmland investments?

The expected decrease in farm income signals that 2009 will be a tough year for farmers. The good news is that there is light at the end of the tunnel. The stabilization of farmland prices and increases in cash rent are signs the long-term fundamentals of agriculture are improving.

We highlighted last month that confidence in agriculture is improving according the Rural Mainstreet Index Creighton University (http://farmlandforecast.colvin-co.com/2009/04/22/rural-mainstreet-index-expands-for-second-consecutive-month.aspx).

We believe the Fed Survey is another solid piece of evidence we have seen the nadir in farmland prices. Now is the time to invest in farmland and we are beginning to see the signs of “green shoots” in the agriculture market.

Link to full report: http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4209

- Colvin