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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1925

August 2004

AgLetter
FARMLAND VALUES AND CREDIT CONDITIONS

collateral as last quarter. Loan-to-deposit ratios were the
highest in a year and a half, averaging 73.7 percent at the
end of the second quarter. The proportion of farm loans
that bankers viewed as having “major” or “severe” repayment problems was down from last year at this time.

Summary
In the second quarter of 2004 there was considerable slowing in the rate of increase in the value of “good” agricultural land for the Seventh Federal Reserve District, as key
agricultural prices dropped (especially corn and soybeans).
As of July 1, 2004, the quarterly increase in farmland values fell to 1 percent, on average, for the District as a whole,
based on a survey of 303 agricultural bankers. For the 12
months ending June 30, the increase was 9 percent, higher
than the year-over-year increase seen for the second quarter
last year but lower than as of the end of the first quarter of
2004. There were also fewer respondents that anticipated
farmland values would rise during the second quarter,
compared with the first quarter.

Farmland values
After a very strong quarterly increase, the average value
of “good” agricultural land in the District increased less
rapidly in the second quarter of 2004. The 1 percent rise in
farmland values for the District (quarter-to-quarter) resulted from slower growth in Illinois, Iowa, and Wisconsin,
and no growth in Indiana and Michigan (see table and map
below). The average year-over-year increase in District
farmland values was 9 percent, again lower than in the
first quarter. Illinois and Iowa saw the strongest gains from
a year ago (13 percent and 12 percent, respectively). Indiana
and Michigan slowed the most with increases of 4 percent
and 3 percent over a year ago, respectively. Wisconsin, meanwhile, was in between with a 6 percent gain. A major factor in the downshifting of farmland value increases was
the decrease in key agricultural prices over the quarter,
especially for corn and soybeans. But continued demand
from nonfarm investors, still historically low interest
rates, and the lack of farmland for sale helped to counter
the downward arc in agricultural prices.

Moreover, credit conditions showed some signs of
slipping, though generally remaining better than a year ago.
Loan demand in the past three months was a bit higher
than a year earlier, and fewer renewals and extensions of
loans were generated in the quarter. The rate of loan repayment was higher than the previous year, though down a
little from the prior quarter. The availability of funds was
less than a quarter ago and the previous year. Also, interest
rates on agricultural loans started to rise across the District.
Nearly the same proportion of banks required increased

Percent change in dollar value of “good” farmland
XII

Top:
April 1, 2004 to July 1, 2004
Bottom: July 1, 2003 to July 1, 2004
April 1, 2004
to
July 1, 2004
Illinois
Indiana
Iowa
Michigan
Wisconsin
Seventh District

+2
0
+2
0
+3
+1

VI
+3
+6
July 1, 2003
to
July 1, 2004
+13
+4
+12
+3
+6
+9

II

I
+2
+13

0
+11

+1
+14
V
+1
III +8

VII
+3
+6

IV

XIV
*

+2
X
+15 VIII

+3
+12

*Insufficient response.

*

*

–1
+9

–1
+6

XV

IX
XI
+2
+14

XVI

0
+4

responding banks was reported as in the “major” or “severe” problem categories—half the level of a year earlier.

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 ’04 ’05

Even with lower growth in farmland values, 44 percent of respondents expected increases during the July to
September quarter, while 54 percent expected farmland
values to remain stable. Only in Illinois did a majority
anticipate rising farmland values. At least 40 percent of
the responding bankers expected farmland values to be
up in Indiana, Iowa, and Wisconsin. Few respondents
predicted lower farmland values during the third quarter.

Credit conditions
Credit conditions took a step back in the second quarter,
but were still ahead of a year ago. Loan demand kept expanding, though barely, due to strength in Indiana and Iowa.
Just 23 percent of the respondents saw demand rise for
non-real-estate agricultural loans compared with a year
ago, whereas 31 percent reported increased demand in the
first quarter of 2004. With lower demand seen by 22 percent
of the respondents, the index of non-real estate agricultural loan demand fell to 101, better than last year at this time.
Renewals and extensions eased back from year-ago
levels, with 21 percent, on average, of the bankers reporting
a decrease, and only 7 percent reporting an increase. Continuing a recent trend, collateral requirements relative to a year
earlier were stricter once again, but just 8 percent of respondents required more collateral in the past three months. Comparatively more banks in Indiana, Michigan, and Wisconsin
tightened collateral requirements than the District as a whole.
Though not as good as last quarter, non-real-estate
farm loan repayment rates from April to June were above
the levels of a year ago. As 24 percent of the bankers noted higher rates of loan repayment and only 6 percent noted lower rates, the index of loan repayments was 118, the
second best in the last decade. Wisconsin saw the biggest
improvement, assisted by the earlier rebound in milk prices,
followed by Indiana and Iowa. Moreover, almost 90 percent of the banks’ farm loan portfolios had no significant
repayment problems, a 5 percent increase over the second
quarter last year. Just 3 percent of the loan volume for

Fund availability improved again in the second quarter of 2004, but at the lowest rate in three years. With 26
percent of the bankers saying they had more funds available
during the quarter than they had a year ago and 9 percent
reporting a lower amount of funds available for lending,
the index of fund availability fell to 117, a three-year low.
Indiana actually had slightly more banks note lower than
higher levels of funds available to lend.
Additionally, the average loan-to-deposit ratio for
the District was 73.7 percent, the highest since the end of
2002. Only Illinois, at 65.7 percent, was below the District
average, while Indiana, Michigan, and Wisconsin exceeded it. Moreover, there was a noticeable increase in the percentage of banks that reported being above their desired
loan-to-deposit ratio (15 percent versus 11 percent a year
ago). In particular, a higher percentage than the District
average was computed for Indiana, Iowa, and Michigan.
One concern was that low deposits, possibly due to the
short soybean crop last year, created difficulties for some
agricultural banks. Still, a majority of banks reported their
loan-to-deposit ratio was at or below the desired level.
After a long period of declining interest rates, farm loan
interest rates moved upward (see chart). As of July 1, the
District average for interest rates on new operating loans rose
to 6.39 percent, still below the level of a year ago. Interest
rates for farm mortgages increased to 6.23 percent. The interest rate spread narrowed again to 16 basis points, the
smallest difference in three years. Interest rates on operating
loans ranged from 6.05 percent in Illinois to 6.66 percent in
Wisconsin, on average. For farm real estate loans, Illinois
also had the lowest rate, 6.14 percent, and Michigan had
the highest rate, 6.44 percent. Banks in Illinois averaged
the same interest rate on operating loans as last quarter.
In recent years commercial banks have faced increased
competition from other financial sources, especially the
Farm Credit System (FCS) and input suppliers. Commercial
banks loaned 40 percent of U.S. farm debt in 2003, while
the FCS share had risen to 30 percent, according to data from
the U.S. Department of Agriculture. The FCS has been
particularly successful in making agricultural real estate
loans (37 percent), though commercial banks still had 34
percent of the total loaned. However, commercial banks
held the largest share of non-real-estate farm loans at 48
percent, followed by the FCS at 22 percent and individuals and others (including input suppliers) at 25 percent.
Farm-related lending from nonbank sources in District
states has been higher than usual again this year, with only life
insurance companies generating less than normal activity.
About 30 percent of the reporting bankers said that FCS
lending for farm operating loans had advanced faster than
normal, while 51 percent reported above-normal levels of FCS

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)

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
Apr-June
July-Sept
Oct-Dec

109
99
95
97

130
138
129
127

79
84
86
104

72.4
72.7
72.9
71.8

6.61
6.43
6.41
6.26

6.75
6.52
6.47
6.35

6.36
6.04
6.12
6.05

2004
Jan-Mar
Apr-June

116
101

131
117

128
118

73.2
73.7

6.22
6.39

6.28
6.46

5.87
6.23

1

At end of period.

2

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.

farm mortgage loans. Merchants, dealers, and other input
suppliers kept lending at a pace above the usual, as indicated
by 42 percent of respondents, while 8 percent saw lending
below normal. Just 9 percent of respondents reported higher
loan volumes for life insurance companies, but 21 percent
noted lower loan volumes. Only in Illinois did life insurance
companies seem to be holding onto their loan volume.
Over 80 percent of respondents stated that the amount
of farm lending by their bank was higher or the same as
in the first and second quarters of 2003. About the same
percentage of the reporting bankers saw farm operating
loans above normal levels at their institution as last year
(with 25 percent above normal and 15 percent below). For
mortgage lending by banks there was a reversal from a
year ago, since 27 percent of the respondents’ banks experienced higher than normal farm mortgage lending and
19 percent faced lower than normal lending. At reporting
banks farm operating loans were up from 2003 in Illinois,
Indiana, and Iowa; farm mortgage loans were up in Indiana, Iowa, and Wisconsin. Michigan was the only state
where banks saw declines for both types of farm loans.

Looking forward
For July through September of 2004, 22 percent of the responding bankers indicated they expect higher non-real-estate
loan volume relative to the previous year, while 17 percent expect lower volume (about 60 percent of the respondents expect loan volumes to remain the same). Notably,
bankers expected loan volume to increase for farm machinery loans and operating loans (to a lesser extent), but
to decrease for feeder cattle, dairy, and Farm Service

Agency guaranteed loans. Strength in anticipated grain
storage construction loans for Illinois, Indiana, and Iowa
continued from the first quarter.
Similar to non-real-estate loan activity, 21 percent of
those reporting said they expected higher real estate loan
volume, while just 10 percent expected lower volume. Almost 70 percent of the respondents expected loan volumes
would remain the same in the third quarter of this year
compared with a year ago. Again it was Illinois, Indiana,
and Iowa that paced the anticipated growth in real estate
loan volume. So, as with non-real-estate lending, real estate loan activity in July, August, and September should
resemble that of a year ago.
David B. Oppedahl, Business Economist
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, business economist, and members of the
Bank’s Research Department. 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.
© 2004 Federal Reserve Bank of Chicago
AgLetter articles may be reproduced in whole or in part,
provided the articles are not reproduced or distributed for
commercial gain and provided the source is appropriately
credited. Prior written permission must be obtained for any
other reproduction, distribution, republication, or creation
of derivative works of AgLetter articles. To request permission,
please contact Helen Koshy, senior editor, at 312-322-5830
or email Helen.Koshy@chi.frb.org. AgLetter and other Bank
publications are available on the Bank’s website at
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.)

July
July
July
July
July
July
July
July
July
July
July

122
116
2.42
90.40
8.21
3.36
128
57.30
91.1
16.2
58.9

–4.7
–4.9
–13.3
–5.0
–9.3
–6.1
–3.8
0.4
–2.6
–11.0
–12.4

16
6
12
2
41
14
27
33
15
34
–14

23
6
14
–1
53
5
45
43
37
46
4

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

July
July

189
187

–0.2
0.3

3
4

5
6

June 1
June 1
June 1
July
July
July

2,970
410
546
2.10
1.58
12.5

N.A.
N.A.
N.A.
–5.5
–5.7
0.8

–1
–32
11
–14
0
1

–17
–40
–30
–13
1
2

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

May
May
May

18,525
8,011
10,514

1.7
–3.3
6.0

24
11
36

32
20
43

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

June
June
June
May

4,427
133
20
93

–9.8
–15.8
1.0
–10.9

2
–8
–37
53

9
–22
–53
50

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

July
July
July
July

9,241
7,588
1,653
671

–10.8
–8.4
–20.2
9.8

35
30
69
45

42
36
80
102

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.

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