By JORDAN STRICKLER
LEXINGTON, Ky. — Crop price projections are not terribly sunny, and that was one of the major factors influencing projected farmland values in a Farm Credit Mid-America (FCMA) survey of Indiana, Ohio, Kentucky and Tennessee.
Farmland prices for those states experienced a negative 0.09 percent change in 2016 from the prior year. “This was pretty much expected, seeing some of the other patterns of how net farm income has been declining,” said Dennis Badger, vice president of collateral risk at FCMA.
Indiana experienced the greatest decline, at a negative 7.1 percent change for 2016. “Indiana prices were not too surprising due to the commodity types that they are dependent on, and compared to Midwestern states, we expected Indiana would take one of the greatest declines,” said Badger.
Ohio values proved to be a surprise, experiencing a 1.2 percent gain in 2016. He said this came as a bit of a shock, as the western part of the state tends to mirror the action of Indiana. In 2015, the Buckeye State experienced near break-even change, at positive 0.2 percent.
Kentucky prices remained mostly consistent with 2015, experiencing a 0.04 percent decline. The prior year, the Bluegrass State showed a 2.7 percent increase. “Kentucky is so diversified from one end to the other, and there is such a difference between parts of the state that it can be hard to quantify,” said Paul Wyler, vice president of Credit for Central Kentucky Ag Credit. “In the last several years, we haven’t really seen big changes.
“We never got the big peak that Ohio and Indiana had. We did have some upward movement whenever grain prices got high, but not nearly as much as they did in other states.”
Tennessee’s rate of gain stayed consistent with 2015. The Volunteer State surveyed at positive 2 percent in 2016. In 2015, it experienced a 2.2 percent gain.
“Given that Kentucky and Tennessee are more of our rural markets, they’re not as heavily dependent on the large farming operations as what Indiana and Ohio would be, so this isn’t too much of a surprise that they are holding quite stable,” explained Badger.
Recent USDA projections did not prove much of a silver lining for farmers. Net income for 2017 is expected to decline by 8.7 percent, while net cash farm income is predicted to rise, only slightly, by 1.8 percent. This would be the fourth consecutive year for a drop in income, following record highs in 2013.
The disparity between the two values is only expected to widen due to an additional $8.2 billion in cash receipts from the sale of crop inventories. The latest Agricultural Finance Monitor, put out by the Federal Reserve Bank of St. Louis, revealed that Midwest and mid-South farm income and expenditures fell during the fourth quarter of 2016. This trend is not expected to reverse itself anytime soon.
In its early forecast this winter, USDA’s outlook for crops lowered production for the 2017-18 crop year for all three major commodities. Prices are expected to remain relatively flat. With the tighter profit margins anticipated in the next year, 2017 is expected to see the overall rate of land-value change to be in the negative territory. Trade is expected to have more of an effect in the coming year than in the past.
“We hope it doesn’t turn into a big issue,” said Jim Farell, a real estate broker with Farmers National Co. “It all depends on what our current administration decides, what they are going to do and how they are going to do it.
“If you look at the acres of soybeans sent to China and if we get into some sort of issue with them where they decide they are going to pull back, that would have a huge impact.”
One area of concern is the threat by Mexico to import its corn from South America, rather than the United States, after President Donald Trump suggested a 20 percent tariff on imports from Mexico. Some are worried the country could also impose a retaliatory tariff, which would tax corn imports from the United States. “At the end of the day, it usually comes down to price,” said Farell. “You’ve got lower incomes on farms. People realize we’re not going back to 2012 levels for grain prices for a while; maybe not for a long time.”