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Farmland values fall amid lower farm incomes

WICHITA, Kan. (AP)--Farmland values fell in the fourth quarter of 2008 in some Midwest and Western states amid weakening farm income and waning market demand, the Federal Reserve Bank of Kansas City reported Feb. 13.

Farmland values peaked in September 2008 at historic highs, when adjusted for inflation, said Jason Henderson, the report's author and an executive at the Federal Reserve's Omaha branch.

"They have retrenched, but they still remain above a year ago," Henderson said.

The 10th Federal Reserve District, which encompasses Colorado, Kansas, Nebraska, Oklahoma, Wyoming and parts of New Mexico and Missouri, surveys banks each quarter for its agricultural credit conditions report.

According to the Federal Reserve's report, non-irrigated cropland values slipped 2.8 percent below the previous quarter, irrigated cropland dipped 1.1 percent and ranchland values fell 1.7 percent. The largest quarterly decline was in Nebraska, where non-irrigated cropland values dropped 4.6 percent.

But compared with 2007, farmland values remained strong. Irrigated cropland was up 10.9 percent compared with a year ago, while non-irrigated cropland was up 7.1 percent. Ranchland was up 5.6 percent.

Dean Stoskopf, who grows crops and operates a cow-calf operation near Hoisington in central Kansas, said changes in farmland values affect rent some landowners receive. But farmland doesn't sell frequently, he said, and those quarterly fluctuations have little immediate impact for most producers.

"It makes your balance sheet look better at the bank. But that goes up and down, so most of us are pretty conservative about what we put on the balance sheet," Stoskopf said.

Farmland values vary widely across the district, partly depending on what crops can be grown, Henderson said.

The average value for non-irrigated cropland in the district was $1,548 per acre. The average for irrigated cropland was $2,385 per acre. For ranchland, the average value was $836 per acre, he said.

The Federal Reserve found that 70 percent of bankers surveyed expected farmland values to hold steady, while 25 percent anticipated they would tumble further.

Meanwhile, the agency also found eroding agricultural credit conditions due to lower crop and livestock prices.

Farmers and ranchers postponed major purchases as profit margins tightened. Bankers expect further declines in farm income and capital spending by producers in 2009.

Stoskopf replaced some aging equipment this past year, buying a new crop sprayer and grain trailer. He said his farm income in 2008 was enough to pay down some credit more quickly than in past years.

But the volatility of the market, which affects costs such as fertilizer and fuel, worries him as he looks ahead to the 2009 growing season.

"We had enough tough years most of us are pretty cautious about going out and getting too carried away buying new equipment and things that will get us deeper in debt," Stoskopf said.

Demand for farm loans also eased in the fourth quarter, particularly loans for real estate and capital purchases. Bankers expected increased demand for operating loans for both crop and livestock enterprises.

The Federal Reserve said its funds availability index rose slightly in the fourth quarter but was expected to decline in the first quarter of 2009. Loan renewals and extensions were up as many farmers waited for commodity prices to rebound before selling their crops.

Loan repayments hit a two-year low.

Interest rates also continued to fall, averaging 6.75 percent for real-estate loans and 7 percent for operating loans. But farmers had to put up more security to get those loans as collateral requirements rose to a five-year high.

More than a quarter of bankers surveyed told the Federal Reserve that they expect credit standards to tighten further in 2009.

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