Farmland Bubble Bursts As Ag Credit Conditions Crumble

Aside from a brief pause during the "great recession" of 2009, Midwest farmland prices have been bubbling up for over a decade with annual price increases of 15%-30% in many years. Private Equity and low interest rates no doubt played a role in creating the farmland bubble as "excess cash on the sidelines" sought out investments in hard assets (see "Is TIAA-CREF Investing In Farmland A Harbinger Of The Next Asset Bubble?"). No matter the cause, data continues to indicate that the farmland bubble is bursting.

2Q 2016 agricultural updates from the Federal Reserve Banks of Chicago, Kansas City and St. Louis indicate continued income, credit and farmland price deterioration for Midwest farmers. Lender surveys also suggest that as many as 30% of Midwest farmers are having problems paying loan balances. Declining asset values and incomes have also caused banks to tighten lending standards which has only served to accelerate the decline.

In Kansas' 10th District (which includes MO, OK, KS, NE), values of non-irrigated and irrigated cropland declined 3% and 5%, respectively, in 2Q 2016. In fact, 2Q 2016 marks the 6th consecutive quarter of YoY declines for irrigated cropland values. Between 2002 to 2014, the value of both irrigated and non-irrigated cropland declined in only one other time in 3Q 2009.

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