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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1907

February 2000

AgLetter
reported their first quarter-to-quarter gain in nearly two
years. But despite the recent strengthening, the value of
good farmland still registered a twelve-month decline in
Illinois and Indiana while holding steady in Iowa. The
number of Michigan responses was too few to report,
but it appears that the gains are narrowing in that state.
Looking ahead, a substantial share of the bankers (71 percent) expects farmland values to be stable in the first
quarter of 2000, while most of the rest foresee a decline.

DISTRICT FARMLAND VALUES RISE IN 1999
Farmland values were up 1 percent, on average, for all of
1999 in the Seventh Federal Reserve District, according to
our January 1 survey of 370 agricultural bankers. The year
was capped off by a relatively strong 2 percent increase
during the fourth quarter (October 1—January 1), in contrast to the sluggish performance during most of the year.
Furthermore, this represented the largest quarterly gain in
almost two years. The bankers also reported that overall
farm loan demand and fund availability were little changed
in the fourth quarter from a year earlier. The pace of loan
repayments continued to show weakness, prompting
bankers to tighten their credit standards, yet credit quality was essentially unchanged from a year earlier. Looking ahead, the bankers indicated that capital spending by
farmers would decline in 2000. They also believe that the
number of acres planted with seed containing genetically
modified organisms (GMO) this year will be steady to declining, relative to a year earlier. But despite the uncertainty surrounding the availability of markets for GMO
grain, a large majority of the bankers indicated a firm
willingness to continue financing its production.
The year-end survey reported notable improvement
in District farmland values, with four of the five District
states registering an increase during the final quarter
of 1999. In particular, the bankers in Illinois and Iowa

Several bankers expressed surprise that local farmland values were firm or rising, especially in light of low
commodity prices and the weak outlook for farm income.
Many ventured explanations, that when taken together,
provide a rationale for the healthier fourth-quarter results.
Some bankers cited commercial and residential development, as well as recreational demand, as contributing
factors. Others indicated that investors who benefited from
the strong nonfarm economy were interested in adding
farmland to their portfolios. Furthermore, strong yields
and government payments enabled many farmers to register higher net incomes over the past year than had been
expected, and the impact of high returns from specialty
crops was also noted. A large number of farm families
also benefited from the strong economy with family
members holding nonfarm jobs. Finally, many commercial farmers did well over the past decade and built up

Percent change in dollar value of “good” farmland
XII

Top:
October 1, 1999 to January 1, 2000
Bottom: January 1, 1999 to January 1, 2000

VI
0
+9

October 1, 1999
to
January 1, 2000
Illinois
Indiana
Iowa
Michigan
Wisconsin
Seventh District

January 1, 1999
to
January 1, 2000

+2
0
+2

–2
–2
0

*

+1
+2

*

+9
+1

II

I
+2
+2

+2
+3

+2
–3
V
III

0
0

*
VII
XIV

+2
+11

IV

*

X
+1
0 VIII *

+1
+1
+4
0

XI
0
–3

XVI
XVII

*Insufficient response.

0
–1

XV

IX

+2
–3

*

Bankers also responded to the downturn in agriculture by raising credit standards. Nearly 7 percent of the
bankers reported considerable tightening of their credit
standards, while 40 percent indicated they had tightened
somewhat. The remainder stated there had been no
change. Even so, they reported that only 3 percent of
their existing farm loan customers would not qualify for
new operating credit in 2000, a smaller percentage than
reported a year earlier.

Quarterly District farm loan rates
percent
13

11

Farm
operating
9

Farm real
estate
7
1990

’92

’94

’96

’98

’00

sizable cash reserves. These farmers are often active
bidders, especially when a local farm comes up for sale
that may not be on the market again in one’s lifetime.
Commodity prices were something of a mixed bag
in late 1999. Farm-level prices for hogs and beef cattle
were substantially above year-earlier levels during the
fourth quarter, but prices for corn, soybeans, and milk
were down. Furthermore, many farmers have experienced a marked deterioration in their working capital
position over the past two years and find it increasingly
difficult to maintain normal debt service payments while
meeting day-to-day operating expenses and family living
needs. While the large level of direct government payments helped maintain the current financial position for
the sector as a whole in 1999, these payments were not
evenly distributed by type of farm or by region. Reflecting
these factors, District agricultural bankers continued to
report weakness in the pace of farm loan repayments.
While 10 percent reported that the pace of farm loan repayments improved during the fourth quarter, relative to a
year earlier, 39 percent reported a decline. The remaining
51 percent indicated there had been no change.
The bankers reported that the quality of District
farm loan portfolios is holding steady, on average, despite
the continuing problems with repayments and an increase
in requests for loan renewals or extensions. Overall, the
bankers classified 78 percent of the farm loans as having
no significant repayment problems, with another 15 percent representing minor problems. Loans with problems
that range from major to severe accounted for 7 percent of
the farm loan portfolio. This breakdown is similar to those
reported six months and twelve months earlier. Many
bankers noted that strong crop yields and government
payments helped maintain the performance of their farm
loans. They also indicated that they are offsetting weak
repayment performance by obtaining more collateral and
federal loan guarantees. For the District as a whole, half
the respondents expect a year-over-year increase in guaranteed loans during the first quarter, and roughly 62 percent
of the Iowa respondents expect a larger number of guaranteed loans.

Loan demand in the fourth quarter was marginally
stronger than a year earlier. About 28 percent of the
bankers reported an increase in demand, while 22 percent
reported a decline. Demand appeared somewhat stronger
in Illinois and Iowa relative to the other District states.
Looking ahead, the operating loan volume is expected
to register a year-over-year gain in the first quarter of
2000, while lending for farm real estate and equipment is
expected to decline. An expected decline in farm machinery lending was reported by 53 percent of the banks,
while only 9 percent anticipated an increase. This drop
also reflects expectations for capital spending in 2000. For
the year ahead, 67 percent foresee a decline in spending on
farm equipment relative to last year. Similarly, other
forms of capital expenditures by farmers across the District
are expected to decline.
The bankers reported that interest rates charged on
new farm loans registered slight gains during the fourth
quarter. Farm real estate loans averaged 8.6 percent for
the District, with Iowa having the lowest average rate of
8.4 percent and Michigan having the highest rate of 9.0
percent. The average rate charged on new operating loans
ranged from 9.1 percent in Illinois to 10.1 percent in
Michigan, coming in at 9.4 percent for the District.
The controversy surrounding GMO crops skyrocketed last year. With food safety concerns magnified in
Europe because of mad cow disease and the discovery of
livestock feed contaminated with dioxins, European
authorities were slow to approve the import of genetically
modified U.S. crops, and then insisted these crops and
related food products be labeled regarding GMO content.
Annual percentage change in Seventh District
farmland values
percent
30

20

10

0

-10

-20
1966 ’69

’72

’75

’78

’81

’84

’87

’90

’93

’96

’99

Credit conditions at Seventh District agricultural banks
Interest rates on farm loans
Loan
demand

Loan
repayment rates

Average loan-todeposit ratio1

Operating
loans1

Feeder
cattle1

Real
estate1

(index)2

1995
Jan–Mar
Apr–June
July–Sept
Oct–Dec
1996
Jan–Mar
Apr–June
July–Sept
Oct–Dec
1997
Jan–Mar
Apr–June
July–Sept
Oct–Dec
1998
Jan–Mar
Apr–June
July–Sept
Oct–Dec
1999
Jan–Mar
Apr–June
July–Sept
Oct–Dec

Fund
availability
(index)2

(index)2

(percent)

(percent)

(percent)

(percent)

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

125
116
122
122

125
114
113
110

117
108
112
94

65.0
65.8
68.2
67.6

9.62
9.69
9.70
9.64

9.63
9.69
9.68
9.61

8.66
8.81
8.80
8.73

134
134
131
120

110
97
97
109

105
94
93
95

67.6
69.7
70.2
70.7

9.71
9.72
9.71
9.65

9.65
9.68
9.69
9.63

8.77
8.83
8.76
8.69

134
127
117
113

113
102
104
121

84
74
60
57

68.9
72.7
72.0
70.3

9.52
9.54
9.43
9.09

9.51
9.55
9.41
9.07

8.50
8.52
8.33
8.06

120
115
109
107

119
107
94
104

40
50
63
72

69.9
71.7
72.7
72.7

9.03
9.11
9.32
9.44

9.01
9.08
9.28
9.41

8.06
8.18
8.42
8.59

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

The controversy spread to the U.S., with some groups
insisting that the Food and Drug Administration ban the
use of GMOs in food products, increase regulation of
these products, or require food companies to label their
products regarding GMO content. Farmers now face
additional costs of segregating GMO and conventional
grain, as well as the added uncertainty of potential price
differentials and whether buyers will accept GMO grain.
These developments raise questions about the number of acres that farmers will plant to GMO crops this
spring, and whether lenders are comfortable with financing
the purchase of GMO seed. (A handful of anecdotal reports
indicate that some farmers are purchasing both conventional and GMO seed, so that they might wait until the
last possible moment to decide which to plant.) In general,
the survey respondents indicated that GMO acreage would
be steady to declining this spring. About 10 percent predicted that GMO corn acreage will increase from a year ago,
with the rest nearly evenly split between a decline and no
change. The responses for GMO soybeans followed a
similar pattern, but a larger share—over half—thought
there would be no change in acreage relative to last year.
For reasons not clear, the share of bankers that believe
GMO acreage will decline was relatively larger in Illinois
than the other District states.
Finally, a large majority of the bankers indicated
a willingness to finance purchases of GMO seed.

Approximately 68 percent stated they were willing to
provide financing, while 28 percent indicated they were
willing but did hold reservations. Only 4 percent stated
they would not provide financing for GMO seed. The responses were similar across states, but a somewhat larger
share of the bankers in Wisconsin (12 percent) expressed
an unwillingness to finance GMO seed.
Mike A. Singer and David B. Oppedahl

AgLetter (ISSN 1080-8639) is published quarterly by the Research
Department of the Federal Reserve Bank of Chicago. It is prepared
by 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:
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Federal Reserve Bank of Chicago
P.O. Box 834
Chicago, IL 60690-0834
Tel. no. 312-322-5111
Fax no. 312-322-5515
Ag Letter is also available on the World Wide Web at
http://www.frbchi.org.

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

90
89
1.90
71.80
4.59
2.52
93
36.50
70.70
11.90
58.0

–2.2
–1.1
4.4
1.0
3.4
0.0
–2.1
1.4
–0.1
–2.5
–5.4

–7
–8
–8
–9
–14
–11
–3
37
14
–32
–19

–13
–18
–26
–24
–31
–24
–2
0
7
–18
–22

168
165

0.0
0.1

3
2

4
4

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
December

8,020
2,182
1,879
2.11
1.70
11.9

N.A.
N.A.
N.A.
–1.5
–0.2
5.3

0
0
–1
1
–5
4

11
9
16
4
4
8

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

September
September
September
September

17,044
8,112
8,386
546

4.7
21.8
–2.3
–47.1

–5
–3
6
–68

–20
–18
–1
–82

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

November
November
October
October

4,629
170
107
101

2.4
–1.4
51.8
2.8

–1
1
–21
–11

–16
41
–37
10

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

December
December
December
December

5,278
3,619
1,659
619

29.7
18.4
63.8
9.8

1
2
–1
–27

–16
11
–45
–52

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

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AgLetter

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