Very simply, 2019 was one of the most difficult planting seasons in US farming history. Record rainfall from June 2018-May 2019 led to unprecedented planting delays and more “prevented planting” claims than ever. Decisions were made more difficult by unclear announcements from USDA on a second round of Market Facilitation Payments (MFP). Generally, the payments will be very helpful for farm incomes, especially in the eastern Corn Belt where average to below average yields combined with lower prices will hurt farm incomes. It was a challenging spring for all producers in Indiana, Michigan, Ohio and Illinois.
On a positive note, commodity prices reacted in late May and June with a spike to $4.70/bu. corn. Soybean prices followed corn upward, and the higher prices did provide producers an opportunity to sell the remainder of last year’s crop at prices better than expected and to price some of this year’s crop at profitable levels. Unfortunately, continued reports from USDA later in the summer caused the markets to react negatively retreating back to the low spring prices. Truly a roller coaster ride so far!
Throughout the ups and downs land values remain steady, according to most reports, but this fall will be very telling as there were very few sales this summer. Here are some thoughts on the major farmland issues in the Corn Belt this fall.
Major Issues Facing Agriculture Today:
2019 Farm Incomes: On most farms this remains a large unknown. Crop yields are far from established due to the late planting, and a warm fall is needed to finish them well. Also prices varied widely throughout the summer and will likely continue to be volatile. The MFP’s will help, much like last year, and are paid earlier (first payment out in late August, early September). The general consensus is that farm incomes in many portions of the eastern Corn Belt will be weak.
Supply of Farms for Sale: The number of farms for sale remains well below average. We saw an increase in sales late in 2018 and the first quarter of 2019. Since that time, the market is quiet with very few transactions. This makes predicting the market difficult, and our early fall sales will provide some critical feedback and insight into the impact of planting challenges and low prices. The low supply remains a supportive factor for land values.
Interest Rates: After multiple increases in 2018, the Federal Reserve lowered rates .25% this summer and may do a similar amount this fall. Long term farm mortgage rates in the 7th District of the Federal Reserve Bank for 15 year fixed rates were 5.39%, a 14 basis point drop from the first quarter. Interest rates should remain a positive influence on land values.
Trade Wars: These remain a huge factor influencing agriculture in 2019. A deal with Japan was announced in late August and discussions with China and the EU continue. A deal with China is paramount to most producers, as that could impact prices positively. Unfortunately, the talks continue with little progress, and some predict it will be after the 2020 election before a resolution is found. Many unknowns and demand for our commodities is suffering!!
2019 Lease Terms: These are difficult to predict this early in the negotiation season. This year, we will probably delay discussions with farm tenants until the outcome from 2019 is better known. The MFP’s are a positive influence, and if the fall weather cooperates, yields could be average. This argues for steady lease rates, maybe even firm in locations where crop yields are good. An early freeze or a cool fall in general could have the opposite effect. Negotiations for 2020 will be more challenging than normal and may vary widely depending on the area. Contact your Halderman Area Representative to help you navigate these tumultuous waters.
Farm Land Values: Farm land values tend to be more resilient, as evidenced by the slight 15-20% decline since 2013 versus a 50% decline in farm incomes during the same time period. The chart to the right reflects Indiana farmland values since 1975, and as you can see, after the decline in 2014 and 2015, the past 4 years the land market traded sideways. With so many unknowns, we are likely to see a low number of sales. This factor combined with low interest rates and only slight changes in rents leads us to expect a steady market as investors and farmers wait for more direction.
Final thoughts: Dealing with unknowns is the new norm over the past couple of years as the weather becomes more volatile and trade agreements seem wrought with “smoke and mirrors”. Patience and taking the “long view” is critical at a time like this. Farmland is historically one of the best assets when held long term!
If you need help or guidance in this world full of questions, ask an expert for assistance! Halderman offers 89 years of vast agricultural experience and our staff knows their regions very well. If you have a question about your farmland asset - give us a call!