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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1920

May 2003

AgLetter
FARMLAND VALUES AND CREDIT CONDITIONS
Summary
Even as farmers showed evidence of reduced farmland
purchases, overall demand to purchase farmland strengthened. With nonfarm buyers filling the gap in demand, moderating rates of increase in the value of “good” agricultural
land were the result, as compared with a year ago, for the
Seventh Federal Reserve District. Based on a survey of 281
agricultural bankers as of April 1, 2003, the quarterly increase in farmland values slowed to 1 percent, on average,
for the District as a whole. For the twelve months ending
March 31, the increase was 6 percent, matching the yearover-year increase of last year. Fewer bankers expected
farmland values to decline and more expected farmland
values to go up in the next three months. The bankers reported that the amount of farmland for sale in recent months
was about the same as last year, but the number and acreage of farms sold were slightly higher than a year earlier.
Cash rental rates for farmland were above the level of a
year ago, as farm operations in the District continued to
shift toward cash rental arrangements.
Regarding mixed credit conditions, the availability of
funds was greater than a year ago and about the same as the
previous quarter. Compared to last year, a smaller proportion of banks required increased collateral, though not as
small as last quarter. In contrast with the stronger loan

demand of the last three months, the demand for agricultural
lending is expected to soften a bit during this quarter. Fewer renewals and extensions of loans were generated in the
quarter than a year earlier according to the bankers, but more
than last quarter. The rate of loan repayment was lower than
the previous quarter, though higher than the previous year.
Interest rates on agricultural loans continued to drop across
the District. Loan-to-deposit ratios declined again, averaging
72.4 percent at the end of the first quarter.

Farmland values
For the District as a whole, the value of “good” agricultural
land continued to rise in the first quarter of 2003, but the
survey showed that outcomes differed among District states
(see map and chart below). From January 1 to April 1, the
rate of change in Iowa’s farmland values lagged behind the
other states with no change (quarter-to-quarter), whereas
the rest of the District states had a 2 percent increase. Possibly the survey results were dampened by the prospects of
a drought this year, which have dwindled since the survey.
The average year-over-year increase in District farmland
values was 6 percent, slightly lower than at the end of 2002.
Michigan, at one end of the range, recorded a 9 percent
gain, while Indiana at the other end reported a 3 percent
gain. Wisconsin, with a 4 percent gain, also was below the
District average, as dairy operations continue to struggle
with low milk prices.

Percent change in dollar value of “good” farmland
XII
VI
+3
+5

Top:
January 1, 2003 to April 1, 2003
Bottom: April 1, 2002 to April 1, 2003
January 1, 2003
to
April 1, 2003
Illinois
Indiana
Iowa
Michigan
Wisconsin
Seventh District

April 1, 2002
to
April 1, 2003

+2
+2
0
+2
+2
+1

+7
+3
+6
+9
+4
+6

II

I
+1
+9

–2
+1

+4
+7
V
–1
III +4

VII
+2
+6

IV

XIV
*

X
+3
+10 VIII

–1
+7

*Insufficient response.

*

*

+1
+9

+4
+9

XV

IX
XI
+2
+5

XVI

0
+1

While nominal cash rental rates have returned to the
levels of the early 1980s, a comparison to the index of cash
rental rates adjusted for inflation reveals that “real” cash rental
rates are about half the rates of the early 1980s (see chart 1).
After a dramatic fall in the 1980s, mirroring the fall in farmland values, “real” cash rental rates remained in a narrow
band for the rest of the century. The inflation-adjusted cash
rental rate for 2003 was slightly down from last year, extending the period of declining or stagnant cash rental rates
to five years, in real terms.

1. Indexes of District cash rental rates
1981=100
120

100
Nominal
cash rental rates

80

60
Cash rental
rates adjusted
by CPI-U

40
1981

’83

’85

’87

’89

’91

’93

’95

’97

’99

’01

’03

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

An interesting characteristic of the farm real estate market was the rise in the proportion of bankers that reported
higher demand for the purchase of agricultural land in their
areas—from 36 percent to 52 percent. In fact, the three primary corn and soybean producing states (Illinois, Indiana,
and Iowa) had over half the respondents indicate they saw
higher demand to purchase farmland. Only in Wisconsin
was there less interest in the purchase of agricultural land.
As last year, 29 percent of the respondents reported
an increase in the amount of farmland for sale in their areas,
though 5 percent more than last year reported a lower
amount. Moreover, about 30 percent indicated that the number (and acreage) of farms sold was higher than in the previous year. Continuing a recent trend of farmland sales for
investment and nonagricultural purposes, respondents observed that farmers purchased a lower share of the acreage
sold, except in Michigan. About 40 percent of the bankers reported the share of acreage purchased by farmers was lower
than last year, compared with 6 percent who reported it
was higher.
Although 68 percent of respondents expected farmland values to remain stable during the April to July quarter, a substantial share (30 percent) expected farmland values
to go up. The percentage of bankers that expected declines
increased only in Wisconsin. At the same time, in Illinois
and Iowa over 30 percent of the bankers predicted a rise in
farmland values. Given the expectation of continued commodity prices above the lows of recent years, except for dairy,
and the transition to a new schedule of government support payments, there seems to be a consensus that farmland values will be mostly rising this quarter.
A 2 percent annual increase in the average cash rental rate for the District was higher than last year’s increase,
but by less than 1 percent. Apart from no change in Michigan,
the states had year-over-year increases of 1 percent in Illinois
and Wisconsin, 2 percent in Indiana, and 4 percent in Iowa
for average cash rental rates for “good” farmland.

Rental arrangements for farmland operated by someone other than the owner continued to shift toward cash
rental agreements. The composition of rentals varied by
state with Illinois (58 percent cash rentals and 38 percent
crop-shared) at one end and Wisconsin (90 percent cash
rentals and 5 percent crop-shared) at the other.

Credit conditions
After some recent improvement in credit conditions, there
were signs of slippage this quarter. Given the varying pressures on farm incomes, the respondents indicated that nonreal estate farm loan repayment rates had deteriorated from
last quarter, but were better than this quarter last year. About
31 percent of the bankers reported lower rates of loan repayment, while only 9 percent reported higher rates. These numbers dropped the index of loan repayments to 79. Moreover,
there was an upswing in renewals and extensions, with 31
percent, on average, of the bankers noting an increase, and
only 7 percent noting a decrease. Lenders in Illinois and
Indiana noted levels of renewals and extensions above the
District average. With signs of increased tension in agricultural loans, bankers reported a tightening in collateral requirements from last quarter, with 26 percent requiring a higher
level of collateral in the past three months. Banks in Illinois
were out front in requiring greater amounts of collateral.
On a more positive note for the first quarter of 2003,
agricultural banks had more funds available to lend, and
there was increased demand for non-real estate agricultural

2. Quarterly District farm loan interest rates
percent
13

11

Farm
operating
9

Farm real
estate
7

5
1990 ’91

’92

’93

’94

’95

’96

’97

’98

’99

’00

’01

’02

’03

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)

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

2002
Jan-Mar
Apr-June
July-Sept
Oct-Dec

108
105
99
101

118
120
124
130

66
71
76
88

72.7
75.1
75.7
73.2

7.33
7.28
7.21
6.70

7.48
7.35
7.26
6.78

7.22
7.08
6.84
6.51

2003
Jan-Mar

109

130

79

72.4

6.61

6.75

6.36

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

loans. Around 36 percent of the bankers reported they had
more funds available from January to March than they had
a year earlier, an increase compared with last year at this
time. In tandem with this increase, there were fewer banks
(6 percent) that reported a lower amount of funds available
for lending. The index of fund availability was 130, the same
as last quarter and the highest in a decade. At the same time,
31 percent of the bankers reported higher demand for nonreal estate loans as compared with 25 percent in the fourth
quarter of 2002. Fewer bankers saw lower demand (22 percent) or the same demand (46 percent) for non-real estate
agricultural loans. Thus, the index of loan demand jumped
to 109, the highest since 2001 at this time.
Somewhat offsetting the impact of tighter collateral requirements, banks reported that farm loan interest rates had
declined again (see chart 2). As of April 1, the District average for interest rates on new operating loans had fallen to
6.61 percent, more than 380 basis points below the peak of
2000. At an average of 6.36 percent, interest rates for farm
mortgages were down 285 basis points from 2000.
The surveyed bankers were asked about their use of
farm loan guarantees provided by the Farm Service Agency
(FSA) of the U.S. Department of Agriculture. About 7 percent
of the District farm loan portfolio is covered by FSA guarantees, a slight increase from last year. Less than 10 percent of
the banks depend on FSA guarantees for at least 20 percent
of their agricultural lending, with just a few over 50 percent.

Looking forward
Comparing the second quarter of 2003 with the second
quarter a year ago, one-fourth of the bankers reported that

they foresee higher non-real estate loan volume, mostly in
operating loans and FSA guaranteed loans, and only onefifth foresee higher real estate loan volume. A majority of
the respondents indicated that they expected loan volumes would remain the same in the second quarter of this
year compared with a year ago. These proportions reflect
little change from the first quarter, though a few more
bankers expect lower loan volume. Overall, expectations
for loan volume in the second quarter of 2003 remained
stable to slightly reduced.
David B. Oppedahl, Economist
Notice: It is with deep regret that the bank announces the passing
of a dear colleague, Jack L. Hervey. Jack was a vital part of the
research department for many years and will be sorely missed.

AgLetter (ISSN 1080-8639) is published quarterly by the Research
Department of the Federal Reserve Bank of Chicago. It is prepared
by David B. Oppedahl, 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)
Barrow and gilts ($ per cwt.)
Steers and heifers ($ per cwt.)
Milk ($ per cwt.)
Eggs (¢ per doz.)

April
April
April
April
April
April
April
April
April
April
April

101
111
2.35
94.50
5.90
3.34
93
34.20
79.30
10.9
69.0

2.0
5.7
0.9
1.8
5.4
–5.6
0.0
–2.8
3.4
–0.9
0.4

7
11
23
–4
32
18
4
7
12
–13
32

–5
8
24
–5
40
17
–15
–29
0
–25
6

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

April
April

184
178

–0.2
–0.1

2
1

4
4

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.)

March 1
March 1
March 1
April
April
April

5,132
1,202
905
2.15
1.66
12.7

N.A.
N.A.
N.A.
5.0
2.3
–2.3

–11
–10
–25
–2
–1
1

–15
–14
–32
11
8
4

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

February
February
February
February

12,781
5,731
7,050
N.A.

–24.0
–36.2
–10.1
N.A.

1
1
1
N.A.

–4
11
–13
N.A.

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

March
March
March
February

4,826
135
92
50

1.7
18.0
–40.6
–22.4

9
–24
43
–26

–1
–23
–32
–44

April
April
April
April

8,244
5,996
2,248
474

29.1
29.4
28.1
77.5

2
8
–11
13

–8
8
–34
30

Farm machinery (units)
Tractors, over 40 HP
40 to 100 HP
100 HP or more
Combines
N.A. Not applicable
*20 selected states.
**Includes net CCC loans.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102