A new survey on Midwest farms is painting a mixed picture in regards to the agriculture economy. The AgLetter from the Federal Reserve Bank of Chicago shows farmland values in the third quarter are 1% higher than a year ago, but values for "good" agricultural land in the third quarter were 1% lower than in the second quarter.
Agriculture credit conditions for the district seemed worse relative to a year ago. Officials say there are credit uncertainties and they're growing, as more farmers are unable to pay their loans off in full every year.
Is it still a good idea to use land as collateral? Sam Miller is the managing director and group head of agriculture with BMO Harris Bank. He says, "absolutely it's wise to use land as collateral. I think a lot of lenders, BMO Harris included, about 7 years ago put a cap on how much we lend on farmland because we anticipated eventually interest rates were going to rise, prices were going to fall. Guess what? That's the circumstance we're in today, so I think lenders are not out of line in terms of the collateral value, but it's still going to hurt on the borrower's balance sheet. No doubt about that."
Also among the trends, operating loans, and non-real estate lending are on the uptick, but Fed officials say at the same time there's trouble brewing for banks to be able to fund all the activity with interest rates going up.
See the full AgLetter from the Federal Reserve Bank of Chicago here.