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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1873

February 1996

AgLetter
7.5 percent, while Michigan recorded the smallest gain
at somewhat over 1 percent. The change in farmland values in each of the other three District states came in near
5 percent for the year.

FARMLAND VALUES AND CREDIT CONDITIONS
Survey responses from about 400 agricultural bankers
show that farmland values in the Seventh Federal Reserve District closed out 1995 by rising 2 percent during
the final quarter. For the year, District farmland values
were up 5 percent. This marked the ninth consecutive
annual gain in District farmland values, with the yearly
increases also averaging about 5 percent. The survey also
showed that interest rates on new farm operating and
real estate loans declined during the fourth quarter.
Gains in loan demand moderated while the availability of
funds for agriculture lending improved. Furthermore, it
appears that relatively strong grain prices have boosted
the pace of loan repayments, and will spur another increase in spending by farmers on machinery and equipment this year.

Looking ahead, a surprisingly large proportion of
respondents expect farmland values to increase during
the first quarter of 1996. Nearly 60 percent stated they
believe farmland values will post a quarterly gain, while
nearly all the remainder anticipate little change. The proportion of respondents anticipating an increase was the
largest to come out of our quarterly surveys of District
bankers since the mid 1960s. However, the outlook was
considerably more moderate in Michigan than elsewhere
in the District, as only a third of the respondents from
that state foresee an increase in farmland values during
the first quarter.
The large proportion of bankers that look for an increase in farmland values likely stems from developments in grain markets. As a result of annual production
declines and strong demand, the fourth quarter average
corn price in central Illinois markets surged to the highest
level since 1983 while the average soybean price was the
highest since 1988. Furthermore, relatively strong fall
futures prices for corn and soybeans and projections of

Farmland values rose about 2 percent in each District state except Michigan during the fourth quarter of
last year, according to the surveyed bankers. The average
rise in Michigan came to a more moderate 1 percent, reversing the slight downward drift in farmland values
recorded during the second and third quarters. The variability among District states for all of 1995 was much
broader. Illinois registered the largest annual gain at

Percent change in dollar value of “good” farmland
XII

Top:
October 1, 1995 to January 1, 1996
Bottom: January 1, 1995 to January 1, 1996
October 1, 1995
to
January 1, 1996
Illinois
Indiana
Iowa
Michigan
Wisconsin
Seventh District

January 1, 1995
to
January 1, 1996

+2
+2
+2
+1
+2
+2

+8
+5
+5
+1
+5
+5

VI
+2
+6
II

I
+1
+6

+2
+3

+2
+5
V
III

0
+7

VII
XIV

+3
+4

IV

+1
+4

X
+3
+7 VIII *

+2
+6

*Insufficient response.

*

XV

IX
+1
+5

XI
+3
+8

XVI
XVII+2
+3

+4
+5

+1
+6

points below the level of three months earlier. However,
it was down over 50 basis points from a year earlier.
Among the individual District states, the operating loan
rate ranged from a low of 9.59 percent in Illinois to a high
of 10.28 percent in Michigan. The farm real estate loan
rate was also lowest in Illinois (8.78 percent) and highest
in Michigan (9.41 percent).

Annual percentage change in Seventh District
farmland values
percent
14

7

0

-7

-14
1986

’87

’88

’89

’90

’91

’92

’93

’94

’95

continued high levels of agricultural exports probably
helped fuel the bankers expectations.
The higher grain prices probably offset the smaller
harvests and added to the liquidity of many District
farmers. This in turn helped narrow the year-over-year
gains in farm loan demand during the fourth quarter.
In line with this, the loan demand index came in at 111,
down from 123 the previous quarter. Among the individual District states, the strength in loan demand was more
apparent in Illinois than the District as a whole.
Relative to deposits, overall lending levels remain
strong at District agricultural banks. The average loanto-deposit ratio registered a larger-than-normal seasonal
decline, but at 64.9 percent was still above the year-earlier level. In addition, there is significant variation in the
average ratios reported for the five District states. The
current readings ranged from a low of 58 percent in Illinois to a high of 74 percent in Wisconsin. Yet despite
these pressures, the accessibility of funds for agricultural
lending improved during the fourth quarter. The fund
availability index stood at 123, its highest reading in two
years. This benchmark represents the 29 percent of the
respondents who reported an increase in the level of
funds available for agricultural lending—relative to a
year earlier—versus the 6 percent that reported a decline.
However, the remaining majority (nearly two thirds)
believe there was little change from the prior year.
The interest rates charged on new farm loans as of
the end of 1995 were down from both three months and
twelve months earlier. At 9.89 percent, the average farm
operating loan rate was about 30 basis points below the
level of three months earlier but only 10 basis points below a year earlier. The average rate charged on new farm
real estate loans—8.93 percent—was also about 30 basis

The rate of farm loan repayments during the fourth
quarter improved considerably when compared to a year
earlier. The loan repayment index came in at 119, well above
recent readings and the highest level in over five years. This
measure reflects the one third of the respondents that saw an
improvement in the pace of agricultural loan repayments
versus the 14 percent that thought repayments had slipped
relative to a year earlier. The remainder—about half—stated
there had been no change. Much of the improvement in the
District-wide gauge of farm loan repayments was accounted
for by the respondents in Illinois and Iowa. About 40 percent of the bankers in those two states indicated that repayments had improved, with a much smaller proportion
indicating a decline. The pickup is likely due to higher grain
and hog prices relative to a year earlier. A year ago, corn
and soybean prices were pressured by record harvests and
hog prices fell to a 20-year low. In comparison, the responses from the bankers in Indiana, Michigan, and Wisconsin
suggested the pace of farm loan repayments in those three
states was similar to a year earlier.
The latest survey also asked the respondents to
share their expectations regarding capital expenditures by
farmers in 1996. The responses clearly indicate a positive
outlook, especially for farm machinery, autos, and trucks.
Over 60 percent of the surveyed bankers indicated they
expect expenditures for machinery and equipment to rise
relative to last year, while only a tenth foresee a decline.
In comparison, half look for a pickup in spending on

Quarterly District farm loan rates
percent
13

11

Farm
operating
9

Farm
real estate
7
1986

’88

’90

’92

’94

’96

Credit conditions at Seventh District agricultural banks

Interest rates on farm loans
Operating
Feeder
Real
loans1
cattle1
estate1

Loan
demand

Fund
availability

Loan
repayment rates

Average loan-todeposit ratio1

(index)2

(index)2

(index)2

(percent)

(percent)

(percent)

(percent)

1991
Jan-Mar
Apr-June
July-Sept
Oct-Dec

128
130
113
109

127
122
122
132

98
74
81
69

56.5
58.1
58.5
57.4

11.40
11.19
10.88
10.06

11.37
11.17
10.89
10.08

10.57
10.43
10.15
9.39

1992
Jan-Mar
Apr-June
July-Sept
Oct-Dec

129
123
111
107

128
123
123
127

77
79
90
93

57.3
58.1
59.3
58.7

9.77
9.57
9.18
9.12

9.80
9.56
9.16
9.13

9.19
8.99
8.63
8.59

1993
Jan-Mar
Apr-June
July-Sept
Oct-Dec

108
103
110
125

131
129
122
126

102
95
90
95

58.0
59.2
59.2
59.7

8.85
8.77
8.63
8.50

8.83
8.74
8.59
8.50

8.29
8.16
7.99
7.88

1994
Jan-Mar
Apr-June
July-Sept
Oct-Dec

136
139
132
112

121
107
96
102

94
90
94
111

59.9
62.5
64.5
63.8

8.52
8.98
9.38
9.99

8.48
8.95
9.30
9.93

7.97
8.48
8.86
9.48

1995
Jan-Mar
Apr-June
July-Sept.
Oct-Dec

122
124
123
111

96
104
104
123

98
93
98
119

64.8
66.1
67.3
64.9

10.33
10.24
10.16
9.89

10.26
10.20
10.14
9.88

9.68
9.64
9.27
8.93

1

At end of period.
Bankers responded to each item by indicating whether conditions during the current quarter were higher, lower, or the same as in the year-earlier period. The index numbers are
computed by subtracting the percent of bankers that responded “lower” from the percent that responded “higher” and adding 100.
2

trucks and autos, whereas 10 percent anticipate a decline.
In general, the bankers’ outlook towards capital spending
is comparatively brighter in Illinois, Indiana, and Iowa
than in Michigan or Wisconsin.
In line with the outlook for capital spending, the
bankers also look forward to a boost in lending for farm
machinery. Nearly half expect an increase in farm machinery loans during the first quarter of 1996 relative to
last year, while less than a tenth anticipate a decline. In
addition, a significant share of the respondents anticipate
a rise in operating loans, which will likely be spurred by
an increase in planted acreage this spring as well as a
relative shift towards corn acres. In addition, the absence
or delay of advance farm program payments this spring
and higher feed costs may well add to the need for borrowed funds. The bankers also expect modest gains in
farm real estate lending.
Our survey also included some questions regarding
the use of debt to finance farm real estate purchases in
1995. The respondents indicated—on average—that
about two thirds of farm real estate transfers involved
some level of debt financing. The incidence of using debt
to finance farmland acquisitions ranged from a low of

61 percent in Illinois to a high of 80 percent in Wisconsin.
The bankers further noted that most of the debt-financed
transfers used only the acquired property as collateral.
The down payment in such instances averaged about a
third of the purchase price. In situations where additional collateral was used, the loan value averaged about two
thirds of the value of the collateral. Either way, District
lenders maintain a similar cushion.
Mike A. Singer

AgLetter (ISSN 1080-8639) is published monthly by the Research
Department of the Federal Reserve Bank of Chicago. It is prepared by
Gary L. Benjamin, economic adviser and vice president, Mike A. Singer,
economist, and members of the Bank’s Research Department, and is
distributed free of charge by the Bank’s Public Information Center. The
information used in the preparation of this publication is obtained from
sources considered reliable, but its use does not constitute an endorsement of its accuracy or intent by the Federal Reserve Bank of Chicago.
To subscribe, please write or telephone:
Public Information Center
Federal Reserve Bank of Chicago
P.O. Box 834
Chicago, IL 60690-0834
Tel. no. 312-322-5111

SELECTED AGRICULTURAL ECONOMIC INDICATORS

Percent change from
Latest
period

Prices received by farmers (index, 1990–92=100)
Crops (index, 1990–92=100)
Corn ($ per bu.)
Hay ($ per ton)
Soybeans ($ per bu.)
Wheat ($ per bu.)
Livestock and products (index, 1990–92=100)
Barrows and gilts ($ per cwt.)
Steers and heifers ($ per cwt.)
Milk ($ per cwt.)
Eggs (¢ per doz.)
Consumer prices (index, 1982–84=100)
Food

Value

Prior
period

Year
ago

Two years
ago

January
January
January
January
January
January
January
January
January
January
January

110
125
3.21
81.70
6.95
4.81
93
42.40
63.00
13.90
79.8

1.9
5.9
4.6
0.4
2.8
–1.4
–3.1
–4.3
–2.6
0.0
–1.5

12
21
47
–2
27
30
0
12
–12
10
29

5
14
19
–5
3
34
–5
–4
–14
2
28

154
150

–0.1
0.3

3
2

5
5

December
December

Production or stocks
Corn stocks (mil. bu.)
Soybean stocks (mil. bu.)
Wheat stocks (mil. bu.)
Beef production (bil. lb.)
Pork production (bil. lb.)
Milk production* (bil. lb.)

December 1
December 1
December 1
December
December
January

6,101
1,833
1,338
1.99
1.51
11.3

N.A.
N.A.
N.A.
4.7
–6.4
1.5

–24
–13
–10
–1
–8
0

3
18
–16
2
–3
3

Receipts from farm marketings (mil. dol.)
Crops**
Livestock
Government payments

September
September
September
September

16,748
9,298
7,442
8

11.1
29.7
–5.6
–68.0

7
8
6
N.A.

10
19
3
N.A.

Agricultural exports (mil. dol.)
Corn (mil. bu.)
Soybeans (mil. bu.)
Wheat (mil. bu.)

November
November
November
November

5,222
201
86
107

1.7
–4.0
10.5
–10.8

12
4
9
–5

34
38
18
–8

Farm machinery sales (units)
Tractors, over 40 HP
40 to 100 HP
100 HP or more
Combines

January
January
January
January

4,974
2,731
2,243
422

–15.3
–6.6
–24.0
–59.2

12
6
19
0

19
14
26
0

N.A. Not applicable
*22 selected states.
**Includes net CCC loans.
AgLetter is printed on recycled paper
using soy-based inks

Federal Reserve Bank of Chicago
Public Information Center
P.O. Box 834
Chicago, Illinois 60690-0834
312-322-5111

AgLetter

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