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Despite Drought, Texas Land Values Rose In 2011

Despite Drought, Texas Land Values Rose In 2011
Bankers responding to the Dallas Fed’s quarterly ag survey said the value of ranches was mixed, ending the year with about a 2% gain.

Despite the worst drought in recorded history, ag land values in Texas followed the national trend upward, with some classes of ag land posting double-digit gains in value in 2011, according to the Federal Reserve Bank of Dallas.

However, ranchland values didn’t enjoy quite the jump seen in farmland. Bankers responding to the Dallas Fed’s quarterly ag survey said the value of ranches was mixed, ending the year with about a 2% gain. Irrigated crop land, just as in other regions of the U.S., showed a significant gain in value, up 14%, and dryland values rose about 6%.

While the outlook is mixed, bankers generally expect the upward trend in land prices to continue into 2012; 16% of the bankers surveyed expect an increase, while 6% anticipate declines.

However, the drought sapped the land’s ability to produce crops, meaning crop insurance was the major income stream for farmers in the district, which includes northern Louisiana and southern New Mexico as well as Texas. But those insurance payments allowed some farmers to pay down loans earlier than usual, with about a fourth of the bankers surveyed reporting an increase in loan repayment rates.

Given mixed outlooks for drought in 2012, demand for ag loans remains subdued, bankers report. Availability of funds remains on the rise and fewer borrowers were requesting loan renewals or extensions.

For ranchers, 2011 was very much a year of mixed emotions. Bankers across Texas universally report significant liquidation due to drought, but a strong cattle market throughout the year allowed ranchers to remain financially healthy.

But worries remain. “Drought is still impacting our area,” says a Central Texas banker. “Cattle runs remained high all year and most producers have culled herds pretty hard. If weather conditions get worse and hay gets shorter, we may see producers selling off their better cattle and not keeping any replacement heifers. The future of the cow-calf business remains to be seen if we get no winter and spring rains.”

In South Texas, bankers estimate the area has about 30% of its normal cattle population.

“One positive aspect of this drought that is different from previous droughts is that worldwide demand for beef, lamb and goats has kept ag prices at high levels,” reports a banker from the Trans Pecos and Edwards Plateau region of the state. “Many ranch operations have had to sell their stock but have at least been able to pay out and, in some cases, put some money back for restocking in the future.”

The region received some rain in October, November and December, which lifted the spirits of area ranchers. “However spotty the coverage,” the banker said, “they nevertheless help soothe the parched souls of those ranchers struggling with the decision of whether to get out or stay in.”

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