Can the Federal Reserve Bank’s Survey of Agricultural Credit Conditions Forecast Land Values?

The value of land dominates the financial structure of most American agricultural production firms, and land values are an important factor in long-term agricultural planning and risk management. As the primary source of collateral for farm loans, farmland values have significant implications for both producers as well as bankers financing agricultural loans. The Federal Reserve Bank of Kansas City’s Survey of Agricultural Credit Conditions is an expert opinion survey in which agricultural bankers provide land value forecasts. As the survey has drawn increased attention, the survey has drawn criticism regarding its use qualitative data to forecast land values. Our research examines the value of the survey data with respect to its ability to forecast movement in land values. Three techniques are used in the analysis. Interpreting the aggregate forecasts as probability estimates, Brier’s probability scores are used to evaluate aggregate bankers’ predictions. Next, turning points are evaluated using contingency tables. Finally, Granger causality tests are used to determine the dynamic relationship between land value predictions and actual land value changes reported by bankers. Bankers’ forecasts predict land values for irrigated and ranchland well, but non-irrigated forecasts were only marginally helpful in prediction non-irrigated farmland values. Forecasts provided in the survey may be beneficial, especially considering the scarcity of other publicly available data.farmland, forecasting, land values, Federal Reserve Bank, Agribusiness, Financial Economics,

Comparison of Alternative Sources of Farmland Values

Consistent and reliable data on farmland values is critical to assessing the overall financial health of agricultural producers. However, little is known about the idiosyncrasies and similarities of standard land value data sources – U.S. Department of Agriculture, Federal Reserve Bank land value surveys, and transaction prices. All three data sources are highly correlated, but transaction prices tend to be higher, especially for irrigated cropland and ranchland. USDA land values are reported as representing land values on January first, but instead they more closely represent first and second quarter land values according to a multi-state comparison to changes in quarterly Federal Reserve land values. Given the finding that first quarter Federal Reserve Bank land values lead USDA land values and that they are published before the USDA release, Federal Reserve land values are a timely indicator of agricultural producers’ financial position.Land Economics/Use,

Structural Changes in Farmer Cooperatives

Since 1990, the farmer cooperative landscape has experienced a significant structural shift. Steep consolidation, elevated competition, and surging commodity prices have elevated the need for co-ops to be mindful of their cost structure and efficiencies. To test for this structural shift, this study estimated technical, allocative, scale, economic, and overall efficiencies for a set of grain marketing and farm supply cooperatives using a unique financial database. Chow test statistics for overall efficiency model show one structural shift in 2002 and 2003. Cooperatives are more likely to reduce costs by focusing on technical efficiency rather than adjusting the scale of operation. Nearly all efficiency trend lines, except for allocative, follows the business cycle patterns of the 1990s and 2000s. Our regression results shows capital constraint was one reason an average cooperative was off the technical frontier

Risk, Profitability, and Efficiency in Agricultural Cooperatives under Allocated and Unallocated Equity

Today, more agricultural cooperatives have experienced a surge in their unallocated equity or equity held at the cooperative level as retained earnings. Key factors contributing to this rise are soaring non-member business and various tax deductions available to cooperatives. Many agricultural cooperatives directors and managers are questioning the sustainability of such a change in equity structure. The purpose of this research is to explore how this change in equity structure has impacted agricultural cooperative’s efficiency, profitability, and risk exposure. The study discovered a positive relation between averaged efficiency indices and the allocated equity to total asset ratio and the unallocated equity to total asset ratio. Higher profitability lifted the average allocated equity to total assets ratio as well as the unallocated to total assets ratio. The higher the business risk, the greater the equity cushion that the firm employs. Higher financial risk implies higher borrowing, hence a lower proportion of equity. Furthermore, larger cooperatives can afford to accept a lower level of equity than smaller firms of comparable business risk

Can the Federal Reserve Bank’s Survey of Agricultural Credit Conditions Forecast Land Values?

The value of land dominates the financial structure of most American agricultural production firms, and land values are an important factor in long-term agricultural planning and risk management. As the primary source of collateral for farm loans, farmland values have significant implications for both producers as well as bankers financing agricultural loans. The Federal Reserve Bank of Kansas City’s Survey of Agricultural Credit Conditions is an expert opinion survey in which agricultural bankers provide land value forecasts. As the survey has drawn increased attention, the survey has drawn criticism regarding its use qualitative data to forecast land values. Our research examines the value of the survey data with respect to its ability to forecast movement in land values. Three techniques are used in the analysis. Interpreting the aggregate forecasts as probability estimates, Brier’s probability scores are used to evaluate aggregate bankers’ predictions. Next, turning points are evaluated using contingency tables. Finally, Granger causality tests are used to determine the dynamic relationship between land value predictions and actual land value changes reported by bankers. Bankers’ forecasts predict land values for irrigated and ranchland well, but non-irrigated forecasts were only marginally helpful in prediction non-irrigated farmland values. Forecasts provided in the survey may be beneficial, especially considering the scarcity of other publicly available data

Accuracy of Qualitative Forecasts of Farmland Values from the Federal Reserve's Land Value Survey

This article determines the accuracy of quarterly land value forecasts provided by bankers through the Federal Reserve Bank of Kansas City’s Survey of Agricultural Credit Conditions. Bankers’ qualitative forecasts of up, down, or no change are compared against actual, selfreported changes in land values. A large proportion of bankers forecast no change. Despite this action, aggregates of bankers’ qualitative forecasts help predict changing land values and forecast better than naı¨ve models. Thus, the forecasts in the survey are helpful in predicting land values

Comparison of Alternative Sources of Farmland Values

Consistent and reliable data on farmland values is critical to assessing the overall financial health of agricultural producers. However, little is known about the idiosyncrasies and similarities of standard land value data sources – U.S. Department of Agriculture, Federal Reserve Bank land value surveys, and transaction prices. All three data sources are highly correlated, but transaction prices tend to be higher, especially for irrigated cropland and ranchland. USDA land values are reported as representing land values on January first, but instead they more closely represent first and second quarter land values according to a multi-state comparison to changes in quarterly Federal Reserve land values. Given the finding that first quarter Federal Reserve Bank land values lead USDA land values and that they are published before the USDA release, Federal Reserve land values are a timely indicator of agricultural producers’ financial position