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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1915

February 2002

AgLetter
FARMLAND VALUES AND CREDIT CONDITIONS

Bankers reported a continued moderation in interest rates on agricultural loans. Rates on operating
loans and farm real estate loans declined for the sixth
consecutive quarter, to the lowest levels in more than
a quarter of a century.

Summary
Increased farmland values in the Seventh Federal Reserve District in the fourth quarter of 2001 continued
the pattern observed throughout the year. According
to the Chicago Fed’s end-of-fourth-quarter survey of
Farmland Values and Credit Conditions, prices for
“good” farmland rose, on average, just under 1 percent
between October 1, 2001, and January 1, 2002. The 372
agricultural bankers that responded to the survey also
indicated that the increase in farmland values, relative
to a year ago, slowed to less than a 5 percent rate. This
compares with a year-over-year gain of 6 percent in
the fourth quarter of 2000.

Farmland values
The increase in District farmland values in the fourth
quarter of 2001 was the seventh consecutive quarterto-quarter increase of around 1 percent. The year-overyear gain of about 5 percent continued well above the
comparable rates reported in the late 1990s (see chart 1),
but receded somewhat from the 6 percent year-overyear increase reported at the end of 2000.
Variations in farmland price changes across
states continued to be fairly broad. Some areas, notably west-central Illinois and south-central Iowa, reported continued weak-to-declining farmland prices.
At the other end of the spectrum, increases in farmland prices were observed in regions where population
concentration continued to exert demand pressure on
land use for residential and commercial purposes and
in areas where demand for recreational land use remained strong.

Credit conditions in District production agriculture turned somewhat weaker in the fourth quarter of
2001. Summary measures of the rate of loan repayment
and the rate of requests for loan renewals or extensions
by farmers deteriorated, following two quarters of improvement. Bankers also indicated that additional collateral was being required to secure loans. Nonetheless,
the overall demand for farm-related loans increased,
after two quarters of declines.

Percent change in dollar value of “good” farmland
Top:
October 1, 2001 to January 1, 2002
Bottom: January 1, 2001 to January 1, 2002
October 1, 2001
to
January 1, 2002
Illinois
Indiana
Iowa
Michigan
Wisconsin
Seventh District

+1
0
0
+3
+1
+1

January 1, 2001
to
January 1, 2002
+1
+6
+3
+10
+8
+5

XII
+1
+9

VI
0
+7
II

I
+2
+2

–2
+7

0
+3
V
III

*Insufficient response.

XIV

+2
+8

IV

+4
+11

X
+3
+6 VIII *

+3
+5

–3
+1

VII

–1
–5

+1
+7

XV

IX
XI
+2
+2

XVI
–1
+5

1. Annual percentage change in Seventh District
farmland values

2. Indexes of District farmland values
1981=100
120

percent
30

90

20

Nominal
farmland values
60

10

0

Farmland
values adjusted
by CPI-U

30

-10
0
1970

-20
1965

’70

’75

’80

’85

’90

’95

Two points stand out. First, the recent appreciation in farmland values was markedly more gradual
than that of the 1970s. Second, the paths traced by the
nominal farmland prices and the “real” or inflation-adjusted prices (see chart 2) were substantially different.
In short, from 1986 to 2001, nominal farmland prices
rose 8 percent per year, on average, while “real” farmland prices rose a little over 3 percent per year. Still, at
the end of 2001, the “real” price index remained about
15 percent below the District average in 1970.
Credit conditions
Following two quarters in which agricultural bankers
reported improvement in credit conditions, their responses in the latest survey indicated that some deterioration took place in the fourth quarter of 2001. Overall,
8 percent of the respondents indicated that the rate of
loan repayment had increased, a slight improvement
from the previous quarter. However, 33 percent of the
bankers indicated they faced a deterioration in the rate
of loan repayment compared with 21 percent who

’80

’85

’90

’95

’00

Note: Derived from Federal Reserve Bank of Chicago Farmland Value Surveys
and BLS consumer price index series (annual average).

’00

Based on bankers’ responses, an index of District
average farmland prices rose to a record level at the end
of 2001 for the second consecutive year. At the end of
the year 2000, District farmland prices (nominal) broke
through the previous index high established at the end
of 1981 (see chart 2). The 1981 record culminated a threeand-one-half-fold increase in average farmland prices
during a single decade. The agricultural recession/restructuring that took place in the 1980s wrung much of
the 1970s price increase out of District land values, leaving them at the end of 1986 some 49 percent below the
1981 high. Since 1986, District farmland prices have
doubled. Is there a difference in the price structure of the
appreciation in the 1970s versus that of the last 15 years?

’75

reported a deterioration in the third quarter. Similarly,
34 percent of the respondents observed a substantial increase in requests for loan renewals or extensions, while
only 7 percent reported a decrease—both numbers
were less favorable than reported in the third quarter.
In an environment where respondents again reported increased availability of funds, 24 percent of the
bankers observed that less favorable credit conditions
prompted them to increase loan collateral requirements.
In a comparable question a year ago, 21 percent of the
bankers noted increased collateral requirements.
Nonetheless, interest rates on farm loans continued to decline in the fourth quarter of 2001, according
to District bankers (see chart 3). On average, operating
loan rates declined 60 basis points from the end of
September to the end of December and, at 7.41 percent,
were 302 basis points below the nine-year peak in the
second quarter of 2000.
Interest rates on farm real estate loans decreased
26 basis points from the end of the third quarter to
7.21 percent at the end of 2001, and were down 200
3. Quarterly District farm loan rates
percent
13

11
Farm
operating

9
Farm real
estate

7
1990

’92

’94

’96

’98

’00

’02

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

Fund
availability

Loan
repayment rates

Average loan-todeposit ratio1

Operating
loans1

Feeder
cattle1

Real
estate1

(index)2

(index)2

(index)2

(percent)

(percent)

(percent)

(percent)

1998
Jan-Mar
Apr-June
July-Sept
Oct-Dec

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

1999
Jan-Mar
Apr-June
July-Sept
Oct-Dec

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

2000
Jan-Mar
Apr-June
July-Sept
Oct-Dec.

121
109
106
105

95
76
82
92

77
72
77
81

72.9
75.5
76.9
74.9

9.78
10.43
10.17
9.92

9.72
10.14
10.14
9.90

8.89
9.21
9.18
8.90

2001
Jan-Mar
Apr-June
July-Sept
Oct-Dec

118
106
91
101

101
109
127
129

67
73
86
75

75.0
75.1
74.9
72.8

9.16
8.60
8.01
7.41

9.17
8.58
8.07
7.51

8.23
7.91
7.47
7.21

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

basis points from a five-year high at the end of the second quarter 2000.
In addition to increased collateral requirements,
a higher proportion of bankers reported a general
tightening in credit standards. Fifty-three percent of the
respondents noted some tightening in standards compared with nearly 47 percent a year ago. However, they
indicated that 2.8 percent of their current operating loan
customers would not qualify for new loans in 2002,
which was down from a 3.5 percent share a year ago.
Looking forward
The outlook with respect to lending activity during the
first quarter of 2002 relative to a year ago might be categorized as subdued. While overall demand for farm
lending was expected to be up, the increase was concentrated in operating loans. Demand for category-specific
loans such as “feeder cattle loans” or “grain storage construction loans” remained weak. A substantially larger
proportion of bankers expected lower loan demand than
higher demand. In particular, the bankers expected a
continued pronounced weakness in “farm machinery
loans.” Nearly 44 percent of the respondents forecast
that machinery loans would be lower than a year ago.
In an environment of reduced rates of loan repayment and increased rates of loan renewals and extensions,
bankers expect to increase their utilization of the USDA’s

Farm Service Agency (FSA) farm loan guarantee program.1 Thirty-eight percent of the bankers expect to increase their use of this program in the first quarter of
2002, relative to a year ago, the highest proportion in
nearly two years.
Jack L. Hervey
Senior economist
1

FSA guarantees apply to ownership and operating loans to farmers who do not meet the standards of conventional lenders. Guarantees may apply to up to 90 percent of the loan principal, and
lenders may resell the guaranteed portion in a secondary market.

AgLetter (ISSN 1080-8639) is published quarterly by the Research
Department of the Federal Reserve Bank of Chicago. It is prepared
by Jack L. Hervey, senior 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
Fax no. 312-322-5515
AgLetter is also available on the World Wide Web at
http://www.chicagofed.org.

SELECTED AGRICULTURAL ECONOMIC INDICATORS

Percent change from
Latest
period

Value

Prior
period

Year
ago

Two years
ago

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.)

February
February
February
February
February
February
February
February
February
February
February

99
101
1.93
90.40
4.19
2.85
97
39.00
74.10
13.30
55.9

4.2
9.8
–2.0
–2.8
–0.7
–0.7
0.0
1.8
4.1
–0.7
–10.3

–1
3
–2
4
–6
1
–5
–2
–6
2
–18

8
11
–3
22
–13
12
5
–3
4
13
–19

Consumer prices (index, 1982-84=100)
Food

January
January

177
176

0.2
0.6

1
3

5
6

December 1
December 1
December 1
January
January
January

8,264
2,276
1,623
2.33
1.72
12.3

N.A.
N.A.
N.A.
10.4
2.9
2.2

–3
2
–10
6
1
2

3
4
–14
7
9
0

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

November
November
November
November

20,326
12,019
8,307
N.A.

–9.6
–7.7
–12.2
N.A.

13
23
0
N.A.

14
29
–3
N.A.

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

December
December
December
November

4,685
142
133
103

–10.9
–2.7
–18.2
4.6

2
–1
25
16

6
–15
22
12

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

January
January
January
January

4,271
3,069
1,202
184

–28.2
–27.1
–31.0
–69.9

–1
7
–16
–56

11
13
4
–35

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.)

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

Return service requested
Federal Reserve Bank of Chicago
Public Information Center
P.O. Box 834
Chicago, Illinois 60690-0834
312-322-5111
PERMIT 1942

AgLetter

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