For The American Farmer "It's Death By A 1,000 Knives”- US Farmland Values Plunge Most In 30 Years

Tyler Durden's picture

Not so long ago, US farmland - whose prices were until recently rising exponentially - was considered by many to be the next asset bubble. Then, exactly one year ago, the fairytale officially ended, and as reported in February, US farmland saw its first price drop since 1986. It was also about a year ago when looking ahead, very few bankers expected price appreciation and more than a quarter of survey respondents expect cropland values to continue declining.

They were right.

According to several regional Fed reports released last Thursday, real farmland values in parts of the Midwest fell at their fastest clip in almost 30 years during the first quarter.

This is how the Chicago Fed described the increasingly dire situation:

Agricultural land values in the Seventh Federal Reserve District fell 4 percent from a year ago in the first quarter of 2016—their largest year-over-year decline since the third quarter of 2009. Cash rental rates for District farmland experienced a significant drop of 10 percent for 2016 compared with 2015—even larger than the decrease of last year relative to 2014. Demand to purchase agricultural land was markedly lower in the three- to six-month period ending with March 2016 compared with the same period ending with March 2015. Moreover, the amount of farmland for sale, the number of farms sold, and the amount of acreage sold were all down during the winter and early spring of 2016 compared with a year ago. Nearly two-thirds of the responding bankers expected farmland values to decrease during the second quarter of 2016, with the rest expecting farmland values to remain stable.

As the WSJ added, falling crop prices have weighed on land values from Kansas to Indiana over the past two years as farm income declined and investors who had piled into the asset at the start of the decade retrenched.

Three regional Federal Reserve banks all reported year-over-year declines in farmland values in their districts and said the drops would continue, though their forecasts were based on surveys taken before the recent rally in corn and soybean prices.

The St. Louis Fed region that includes parts of the U.S. agricultural heartland in Illinois, Indiana and Missouri reported the steepest decline, with the average price of “quality” farmland falling 6.4% in the quarter, the biggest decline since its survey began in 2012. The Chicago Fed said prices for similar land in its district fell 4% from a year ago, the seventh successive quarterly decline. Adjusted for inflation, prices in an area that includes parts of Illinois, Indiana, Iowa, Michigan and Wisconsin fell 5%, the biggest quarterly drop since 1987.

Not even a recent short-term bounce in commodity prices - driven by China's now concluded record loan expansion - is cause for optimism. Though some agricultural markets have rallied in recent weeks, prices for corn and wheat are still more than 50% lower than their 2012 peak, and the U.S. Department of Agriculture has projected that net U.S. farm income will fall this year to the lowest level in more than a decade.

Commodity prices have declined as farmers in the U.S. and elsewhere harvested bumper crops, adding to already generous stockpiles. U.S. farmers have also been hit by the strength of the dollar, which has stymied demand to export their crops.

Another reason for America's farmland recession: the drop in land values has been accompanied by deteriorating credit conditions, with more loans taken out to cover farm operations even as repayment rates fell on existing debt.

It appears that in its scramble to save banks' from their underwater energy exposure, the Fed forgot all about bailing out the American farmer.  The Kansas City Fed said the weaker credit environment had left many growers unable to pay off loans extended to them in the previous year, forcing them to carry debt into 2016.

It gets worse: loan-repayment rates fell for the 10th consecutive quarter, which the bank said was the longest run of deteriorating repayment rates since the early 2000s. While farm loan delinquency rates remained low, growers with significant debt may face continuing stress.

“This most recent uptick in loan demand may be more concerning because it has coincided with a period of falling repayment rates, softening farmland values and increasing collateral requirements,” said the Kansas City Fed in its report.

* * *

And then there was the latest JPM report from its 2016 midwest planting tour. Here are some of the key findings:

We spent the last few days in the Midwest visiting dealers, farmers, and a variety of industry experts. Overall, our sense is that the industry is “healing” but the down-cycle will be long as used inventories remain elevated, used prices are still “in discovery mode”, and farmers are staring at a fourth year of losses and asset write-downs; sentiment improved a little with the USDA’s demand outlook, at least for beans (but that may be short lived). We maintain our negative outlook for US ag fundamentals.

Among JPM's other troubling findings is that farmers are not making money at current prices, and rents have started to move down, but not quickly enough; in IA, farmers must alert landlords in writing by September 1 if they want to renegotiate for the following year. Farmers have been buying equipment at auction when they perceive that it is good value, even though they may not need extra equipment; however, dealer used equipment prices continue to decline YoY, and the decline is accelerating as more used equipment is going to auction (at about a 20-30% discount).

JPM also makes the following key observations:

  • Deere dealer: The Deere dealer we met in Iowa noted that he (uniquely) sold no new equipment for the past 16-18 months in order to reduce used inventory, which peaked at $20MM and is now at $7.5MM (vs. normal of $10MM). At the peak of the cycle he sold 80 tractors and 30-40 combines and his turns were 3.5- 4.0x, whereas now his combine turns are ~1.5x. He was able to sell some used equipment to Mexico but had to liquidate some through auction at a significant loss (up to $100K on a high HP tractor)
  • Titan dealer: At the peak of the cycle this dealer sold 23 combines per year; he sold three in 2015 and has 13 sitting in used inventory (about  three years excess used inventory). He cannot sell new equipment until he sorts out the used equipment inventory (combines in particular), though he noted that he has sold six tractors YTD, more than he managed for all of 2015. Like other dealers we spoke with, Titan dealers are very hesitant to sell used equipment through auction as prices can be up to 25% lower than book value; he would prefer to sell used equipment at a loss rather than write down the value of his entire book.
  • CAT (AGCO) dealer: This dealer noted that his dealership reported $186MM in sales at the peak in 2013, and this year his budget is to deliver $130MM, but he acknowledged that he may not make the budget as he too is struggling with excess used inventory. Unlike the DE dealer who simply stopped selling new equipment, this dealer has charged his sales force with a ratio of used for every new sale (tractors and competitor combines are 2:1 used vs. new, and for Lexion combines (Claas) the ratio is 3:1). He acknowledged that he may be taking a “death by a 1,000 knives” approach that could result in 2017 sales being down again.

Here is JPM's summary assessment on US farmer sentiment. It's not good. 

The farmers we hosted remain pretty downbeat about the prospect for profits in the 2016/17 crop year, though they did sell most of the 2015/16 crop during the recent rally. Once again this year much of the focus was on rent, which remains elevated, and, while it may be inching lower, farmers in IA need to put in a written request for a re-negotiation by September 1 for 2017/18; those conversations are going to need to be uncomfortable this year. One farmer noted that he has 20+ landlords, so the process can be time consuming and emotionally exhausting. On a separate issue, the farmers noted that Farm Credit requested that farmers write down equipment values by 20% in January; the longer the down-cycle lasts the more stress on their balance sheets, especially for farmers renting a significant portion of their farmland. None of the farmers are rolling equipment right now, but they do not like to have  equipment out of warranty as repair costs can run to $20K out of pocket. Beyond equipment, savings are being made on seeds (by moving to fewer traits or non-GMO), but not enough to break even at current prices.

  1. farmers are still forecasting a loss (for the fourth consecutive year) in 2016/17;
  2. balance sheets are coming under more pressure as equipment values are marked down (particularly farmers with a high proportion of rented land);
  3. renegotiating rents is extraordinarily stressful and time-consuming as most farmers have multiple landlords;
  4. lenders are becoming more risk averse as the cycle extends.

Finally, for the best indication of just how dire the future is, we look at what those who know the business best are doing in terms of investments.Here is JPM: "Based on data from the Bureau of Labor Statistics, investment in agricultural machinery peaked at $50 billion SAAR in Q4’13 and is now down 58% from peak at $21 billion, about in line with 2002 levels."

While America was so focused on whether or not there is a recession in the US manufacturing and oil & gas sector, it completely ignored the depression in America's farming heartland.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
bbq on whitehouse lawn's picture

Its not about hemp or any plant its about control, to distroy those who could use the land outside the dictate of those who own the milling.
Give me 100 acers and within a year they would own property on the moon.

Supernova Born's picture

Jim Rogers has been talking up farmland, and making "learn to drive a tractor" comments to news readers for years.

The Saint's picture
The Saint (not verified) Kissy Ass May 14, 2016 11:19 PM

It's "Death By 1000 Cuts" not "by 1000 knives."

greenskeeper carl's picture

Isn't a large part of why arable land is so expensive now because of corn subsidies to make ethanol? Isn't this an example of yet another govt/fed induced bubble, prices that wouldn't have ever been so high if we hadn't done something retarded like make the US put corn likker in our gasoline?

OrangeJews's picture
OrangeJews (not verified) greenskeeper carl May 20, 2016 11:43 AM

Was just back in Iowa a couple weeks ago... 

Land price:  Down

Corn/Soybeans:  Down

Cost of parts:  Higher

Cost of chemicals:  Higher  

(Found out people are finding it more profitable to not use chemicals every year and only do it every few years)

 

This is going to get really fucking bad.  Hold on folks!

BeanusCountus's picture

He will be right in the long run. Unless.... Someone is planning on a lot less people around to need food?

AGuy's picture

Uh, Lower prices for farm land is a good thing. I makes it more cost effective for farmers to acquire land, get lower lease costs, and lower property taxes. The issue is that non-farmers were gobbling up farm land, speculating the bio-fuels cause demand for farm land to soar. I turns out that Biofuels was a complete dude, and the speculators are dumping.

Ias also likely that older farmers are retiring or selling off their farms. I believe the average age of farmers is about 60 years, since younger people have no interest in farming. They rather move to the urban regions and get a job doing anything but farming.

Eventually Jim Rogers will be right because there isn't going to be enough farmers to feed the population. Lower farm land prices is also good for those looking to go Galt.

 

mkkby's picture

Farming is a terrible business, thanks ONCE AGAIN to gov interference.  You subsidize them for product no matter how much excess there is, and surprise surprise -- you get prices that don't make economic sense.

You can't have it both ways.  Either the consumer pays more, or farming is a terrible business where everybody depends on subsidies.

Jimmy Rogers was only talking about holding land as an inflation hedge.  But you have to choose carefully.  He never meant for anyone to get into a losing business.

ultraticum's picture

Farms still yielding like 2% at best.  If the market was ever "free", there would be a real bloodbath and opportunities would arise for the evil "saver" to deploy their capital.  But, since the USSA has converted the farm belt into the welfare belt, that won't be happening.  Banksters here in in the farm belt universally say that their farm loans perform just as well when prices are low as they do when they're high.  Why?  Insurance and mailbox money from .gov.

Sorry ZH, there has not (yet) been a real plunge in farmland prices.  There won't be until the greater ponzi sees it ultimate unwinding.

PaperTaperFakerCaper's picture

And smoke it, and eat it - incl. hulled seeds & lovely fudge brownies (yummmy), and weave it into ultra-strong fiber for clothing, baskets, etc.

HEMP NATION 2017

813kml's picture

Just need moar corn and govt-mandated HFC feeding tubes.

DownWithYogaPants's picture

I like high fructose corn syrup.  The HFC in gatorade has powered me up many a mountain.

NihilistZero's picture

But much like farmland, you can overpay for it.  Assuming we were in a permanent inflationary spiral ignored history.  To many people bet that the FED induced business cycle was no longer truly cyclical.  The correction in assets seems to be picking up steam.  Sitting on some good old fashioned fiat isn't a bad play right now.

Escrava Isaura's picture

 

 

It’s amazing the power of fiat money in the hand of an empire. It can do whatever it wants. To whoever it wants. So, just sit back, with your fiat money, of course, and watch.

“United States is becoming a failed state, and thus a danger to its own people and the world.” – Noam Chomsky, 2006

 

omniversling's picture

Mission Accomplished.

Now that the weather is owned by the US military (a few years ahead of shedule), no large scale agriculture is immune to manipulation. Asset stripping cycle of arable land for multinational agribusiness about to commence in 3......2......1....

Weather as a Force Multiplier: Owning the Weather in 2025

http://csat.au.af.mil/2025/volume3/vol3ch15.pdf

Why in the World are They Spraying?

https://www.youtube.com/watch?v=mEfJO0-cTis

Geoengineeringwatch.org

Government needs you to pay taxes's picture

Institutional investors WAYYYY underown agricultural assets, including farmland.  The reason is b/c you need a good operator to consistently make $.  Arable land is a relatively less inflated asset, and I believe has a lot of favorable characteristics for people looking for asset diversification and a bugout spot.

any_mouse's picture

Recently, I watched a small violent storm cloud pouring rain down on one area for over fifteen minutes without moving. For the rest of the 360 degree horizon, not a rain cloud in sight. Sunlight between clouds and the horizon. Looking back north across US 95 in Nye County Nevada I continued to watch this "miracle" inside the DOE Nevada Test Site.

 

dvfco's picture

Escrava Isaura - Once again, you are 100% correct.

We can all enjoy paying with are strong fiat money, until we can't.

I'm guessing that by sometime in mid- to late-2017 nobody will be taking $s at anywhere near the price at which they're taking them today.  When asked what happened, the only answer wil be, "It started off slow, then ended all at once."

We're screwed.  I'll vote for Trump because I couldn't stand the alternative, but I think he'll be too honest for our own good.  I could picture him coming out in his second week in office and saying, "I'm sorry to tell everyone this, but Fort Knox has been empty for 50 years, we have no gold, and we're really $300T in debt.  But, Let's keep our chins up and make some smart deals."

Panic ensues.  Or, Hillary gets elected; panic ensues.

Greenie's picture

The first part of healing the present system is to destroy the old system, or at least the parts that don't work. Trump maybe can get things started. The recession of 1920-21 is an example.  In the days before central banks had an iron fist on everything, things were allowed to crash and swift healing followed. Nothing will improve until a crash of significant proportion occurs and the crap is flushed out.

duo's picture

Most of that district has had the topsoil depleted growing corn for ethanol.  It's essentiall beach sand now.

I'm looking for some farmland to buy in District 12.

August's picture

Lay up some bricks of Tubmans, guys.

de3de8's picture

Uh oh, looks like tractor pulling is going to take a hit

Yen Cross's picture

You most certainly can consume gold, and I'd recommend a fitted trommel under your latrine, to catch your BOOTY.

matermaker's picture

Productive farmland is invaluable.  The rate of return is only equal to the success of your labor and endeavor.  This is, afterall, where the conception of wealth came from.

g speed's picture

yeah --that and the "farm bill"----

SunRise's picture

Gold is one of the safest metals to eat and it's subsequently hilarious walking through airport scanners.

Boris Badenov's picture

Do any farmers get royalties from Frakkers for using their land? How's that working out? Any connection to declining land values?

August's picture

As has been said by many, gold is not for emergency use.

Gold is the means to transmit purchasing power across an economic singularity.

Theta_Burn's picture

Seems absurd that farmland as well as farmers whom all our lives depend are struggling.

Something doesn't add up...

 

TheEndIsNear's picture

Just like the Great Depression, when farmers were dumping milk and produce on the ground because they couldn't make a profit at the prices back then.

JohnG's picture

Not entirely accurate:

During the Great Depression of the 1930s, agricultural price support programs led to vast amounts of food being deliberately destroyed at a time when malnutrition was a serious problem in the United States and hunger marches were taking place in cities across the country. For example, the federal government bought 6 million hogs in 1933 alone and destroyed them. Huge amounts of farm produce were plowed under, in order to keep it off the market and maintain prices at the officially fixed level, and vast amounts of milk were poured down the sewers for the same reason. Meanwhile, many American children were suffering from diseases caused by malnutrition.

–Thomas Sowell, Basic Economics (3rd Edition, Basic Books, 2007), p. 56.

BarkingCat's picture

FDR the fucking fascist and one of the most admired presidents by the democrats 

Mr. Bones's picture

It's with noting that they still pay for goods only to destroy them to this day.

bloofer's picture

Nearly everyone who lived during the Great Depression is now dead, but back in the 1980s elderly people told me of the federal government forcing farmers to destroy crops and livestock, and of truckloads of apples dumped into the Missouri River, at a time when, as the old people said, "so many people were hungry."

It's not a tale you'll hear about in a history class.

"It was terrible what FDR did to the farmers," the old people said.

NihilistZero's picture

Couldn't have the lien-holders on those agricultural properties take further losses, that would be unimaginable! Kill the Children / Save the Lenders!

matermaker's picture

Don't grow 2000 acres of monsanto corn and you might do alright.   The Dust Bowl happened largely because of unwise tilling and fallow field practices.   We didn't learn much when WWII gave us all the unused nitrate production.

MalteseFalcon's picture

The dust bowl happened because Americans were slash and burn farmers from the beginning.

Use up a plot of land and move on.

Then the frontier closed.

No more moving.  One generation later....

Kaboom.

August's picture

You're thinking of Russians, more than Americans.

(FWIW I like Russians)

Dakota Kid's picture

The dust bowl occurred because of hot weather, a lack of rain  and a failure to apply dryland farming methods to prevent wind erosion.

My dad told me he had to give tomato plants 5 gallons of water daily to keep them alive because it was so hot and dry.

Normalcy Bias's picture

It's probably another organized push to drive independent farmers out of business, so the huge corporations can buy up the farmland on the cheap. Rinse, repeat...

Mr. Universe's picture

It's chapter 1, and every page thereafter of the the NWO handbook. Destroy small businesses through regulation, control of processing, marketing and supplies. The guy who makes the box for the Corn Flakes makes more than the farmer does. I hate to say it but if you are a mono culture corn farmer, it's time to wake up and see how screwed it is being you.

Escrava Isaura's picture

 

 

Wishful thinking of you believing that the general population can figure these things out on their own. The general population is too busy working eight hours, if not more, trying to survive. The general population will go down to the poor house never understanding what really happened. Wondering why?

Well, you’ll hear by some that the goyim are too stupid, because they lack higher mental faculty. Or, you will hear that’s a genetic factor for their survival.

Or, you’ll hear that, the people that know, that understand won’t tell or write about it. So, what you hear, see, and read from the massmedia is propaganda to dumbdown and distract you way from reality.

You’ll might also hear that, religion and education are the highest form of indoctrination. Thus, they can shape how you think the way an army can shape you into combat for others.

Or, you might hear from these dumbdown population all kind of other reasons. Anyway, my favorite is by Adam Smith:   

“(Smith) He's pre-capitalist, a figure of the Enlightenment. What we would call capitalism he despised. People read snippets of Adam Smith, the few phrases they teach in school. Everybody reads the first paragraph of The Wealth of Nations where he talks about how wonderful the division of labor is. But not many people get to the point hundreds of pages later, where he says that division of labor will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be. And therefore in any civilized society the government is going to have to take some measures to prevent division of labor from proceeding to its limits.” — Noam Chomsky (1995) Class Warfare, p. 19-23.

“Smith is generally regarded as a conservative economist, whereas in fact, he was more avowedly hostile to the motives of businessmen.” — Robert Heilbroner (1953) The Worldly Philosophers, Chapter III, p. 62.

 

 

dvfco's picture

Escrava Isaura - Great Post.

I think you got bitten by the TL;DR bug.  

Otherwise, you should be >+20

(Or, you are broadly despised, in which case, I'm sorry.)

Escrava Isaura's picture

 

 

Thanks.

Not worried about being despised, because I understand that most find our future to be too disturbing, when looked at it honestly. Anyway, I find looking at things critically much more interesting. Things start making sense. And blogging a great platform to explore it, in my view.