(Dow Jones) -- Farmland values dropped across parts of the Farm Belt in the second quarter, according to Federal Reserve reports on Thursday, amid low crop prices and weak farm incomes.
Prices for irrigated farmland in the Federal Reserve Bank of Kansas City district, which includes Kansas, Nebraska and western Missouri, slid 5% compared with a year earlier. The value of nonirrigated land fell 3%, the bank said.
In the St. Louis Fed's district, covering parts of Illinois and Indiana, the average price of "quality" farmland slipped just 0.7% from year-ago levels, the bank said. While second-quarter declines paled in comparison to those reported earlier in the year, they mark the fourth straight quarter of deteriorating land values. Many lenders in the district expect values to drop further. More than 30% of bankers in the Kansas City region also anticipate ongoing weakness in the current quarter.
The reports are evidence of a continued downdraft in the U.S. agricultural sector, which comes after a years-long boom that drove up crop and farmland prices earlier this decade. Since 2013, U.S. growers have raised bumper corn and soybean crops, helping spur a multiyear slump in commodity prices and contributing to a steep slide in farm incomes. Despite a spring rally in agricultural markets, farmers are on track for their least prosperous year since 2002, with crop prices expected to remain low thanks to benevolent weather that fueled expectations for a bumper harvest this year.
"Farmers in our region have only been able to survive declining commodity prices the past 24 months due to conservative spending, improved efficiency and good crop yields," said one Arkansas lender. "A reduction in the yield or quality of crops, increases in input costs, or continued low commodity prices could be the tipping point for many undercapitalized operations."
Bankers surveyed by the Fed banks in Kansas City and St. Louis said farm income fell in the second quarter, and overall financial conditions also declined. In the Kansas City region, bankers said reduced profits had prompted increased demand for farm loans while repayment rates slowed. District agricultural lenders also said more than 7% of farm loans in 2016 had "major or severe" repayment issues, up from an average of 3% from 2011 to 2013. As a result, bankers increasingly turned farmers away during the second quarter, with nearly 15% of lenders in 2016 reporting that they denied over 10% of applications for farm loans.
Although growers with strong balance sheets can still access credit, "the higher rate of loan denials suggests the number of farm borrowers who are less creditworthy has increased over the past year," the bank said.
Average values for ranchland, used for grazing livestock, fell 3% in the Kansas City Fed district from a year ago, and 7.4% in the St. Louis region. Cash rents, or the rent paid by farmers to landowners, also dropped precipitously in the St. Louis area, with rent for farmland sliding 10% and ranchland rent tumbling more than 20% in the second quarter.