Chicago Fed sees 5% increase in good farmland values

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In 2013, the Seventh Federal Reserve District had an annual increase of 5 percent in “good” farmland values, yet growth in farmland values appeared to be slowing. Some areas in the district even saw declines in farmland values, as corn and soybean prices tumbled from a year ago.

According to survey respondents from 186 agricultural banks across the district (Iowa, Wisconsin, Michigan, northern Illinois and northern Indiana), agricultural land values rose 3 percent from the third quarter to the fourth quarter of 2013. A majority of respondents anticipated farmland values to remain stable during the January through March period of 2014, but the rest of the respondents’ expectations tilted toward decreases in farmland values during this period.

Agricultural credit conditions weakened in the fourth quarter of 2013 compared with the fourth quarter of 2012. Repayment rates on non-real-estate farm loans were lower in the October through December period of 2013 versus the same period of 2012, and rates of loan renewals and extensions were higher.

In the fourth quarter of 2013, non-real-estate loan demand picked up from a year ago—which last occurred in the fourth quarter of 2010, as farmers had relatively more working capital during the intervening quarters. Funds available for lending remained above the level of a year ago. At 67.3 percent, the average loan-to-deposit ratio for reporting banks was just above the level of a year ago. Agricultural interest rates continued to inch up in the fourth quarter of 2013.

The district’s annual increase of 5 percent in “good” farmland values for 2013 was the smallest gain since 2009 and the second-lowest gain of the past decade. Moreover, the 5 percent year-over-year increase in farmland values in the fourth quarter of 2013 was the smallest for the district since the first quarter of 2010.

The index of inflation-adjusted agricultural land values set a new high-water mark for the district, not quite doubling its 1979 peak from the 1970s boom. In the fourth quarter of 2013, Illinois, Indiana, and Michigan experienced year-over-year gains in agricultural land values exceeding that for the district; in contrast, Wisconsin had a year-over-year increase that was smaller than the district’s, and Iowa actually saw lower values for agricultural land than a year earlier.

Overall, the district’s crop production bounced back strongly from the 2012 drought, but drought returned to the Midwest in 2013, hitting Iowa the hardest among district states. According to U.S. Department of Agriculture (USDA) data, the district’s corn yield surged 42 percent in 2013 from 2012—to 169 bushels per acre (its third-highest level on record). Also, the district’s soybean yield moved up 7.5 percent in 2013 from 2012—to 46.9 bushels per acre.

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