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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1938	

AgLetter
FARMLAND VALUES AND CREDIT CONDITIONS

November 2007

leading some bankers to fear overcommitments by farmers,
given elevated land values and stiff competition for acres
to rent in 2008.

Summary
Farmland values jumped 15 percent in the third quarter of
2007 from the third quarter of 2006 in the Seventh Federal
Reserve District. Compared with the second quarter of 2007,
the value of “good” agricultural land increased 4 percent.
With responses from 222 agricultural bankers, the survey,
as of October 1, 2007, indicated vigorous interest by farmers
in purchasing farmland, given brighter prospects for higher
levels of farm income. More than half of the respondents
anticipated rising farmland values in the fourth quarter
of 2007.

Farmland values
The year-over-year increase in the value of “good” agricultural land in the District surged to 15 percent for the third
quarter (see map and table below). This year-over-year
increase, the largest since 1979, outpaced prior gains in this
decade (see chart 1). The results for District states ranged
from 10 percent in Illinois, Michigan, and Wisconsin to
21 percent in Iowa. District land values increased 4 percent
from the second quarter of 2007. The quarterly results for
District states included gains of 4 percent in Illinois, 6 percent
in Indiana, 3 percent in Iowa, and 8 percent in Michigan,
with no gain in Wisconsin. Also, Wisconsin was the only
state with a lower year-over-year increase in land values
than last quarter.

Third quarter agricultural credit conditions were little
changed from the second quarter of 2007, but looked better
than a year ago, according to District bankers. Demand for
non-real-estate loans strengthened from demand in the
third quarter of 2006. Funds availability increased for
District banks, while collateral requirements tightened
slightly. District loan repayment rates rose, and loan renewals and extensions fell from the third quarter a year ago.
Average interest rates on agricultural loans eased a bit
since the start of July. The average loan-to-deposit ratio
edged up from three months ago to 78.1 percent, 3 percent
below the preferred ratio. Overall, District agricultural credit
conditions have rarely seemed better in recent decades,

Over half of the responding bankers expected farmland values to increase during the October to December
period, with only 2 percent expecting declines. These results reflected a continuing change from a year ago, when
expectations inclined toward stability. Wisconsin respondents exhibited the lowest expectations (45 percent) that
farmland values will go up in the fourth quarter of 2007,
as well as the highest expectations of declines (7 percent).

Percent change in dollar value of “good” farmland
Top:
July 1, 2007 to October 1, 2007
Bottom: October 1, 2006 to October 1, 2007
	
	
	
Illinois	
Indiana	
Iowa	
Michigan 	
Wisconsin	
Seventh District	

July 1, 2007	
to	
October 1, 2007	
+4	
+6	
+3	
+8	
0	
+4	

October 1, 2006	
to
October 1, 2007
+10
+17
+21
+10
+10
+15

VI
–4
+5
I
+8
+23

II
+2
+19
–3
III +19

+2
+19

*
VII
+4
+16

IV

XIV
*

X
–2
+5 VIII

V
+5
+21

*Insufficient response.

XII

*

IX
+5
+17

XV

XI
+6
+12

XVI

+3
+14

+7
+19

1. Year-over-year changes by quarter in District farmland values
percent
15

10

5

0
2001

’02

’03

’04

’05

’06

’07

In the other states, at least half forecast increases in land
values during the next three months.
Demand among farmers to acquire farmland should
heighten this fall and winter, whereas demand among nonfarm investors should remain steady. District bankers
strongly predicted higher rather than lower interest in land
purchases among farmers (63 percent versus 6 percent).
Only about a third of the Wisconsin bankers expected higher
demand by farmers, although that was still 14 percent more
than those who expected lower demand. About 40 percent
of the respondents foresaw interest in farmland by nonfarm investors going up; about 20 percent anticipated it
going down over the next three to six months. With 46 percent of the respondents anticipating higher volumes of
farmland transfers from the previous fall and winter and
10 percent anticipating lower volumes of transfers, there
should be more farmland sales from the swell in demand
by farmers. Farmland transfer activity in Indiana and Iowa
may be higher than in the rest of the District, while Wisconsin
may not see any bump in its activity.
Substantially higher corn and soybean prices than a
year ago helped raise expectations for net cash farm earnings in the District and shed light on the heightened demand
for land by farmers. For the primary types of District operations, more respondents expected increases in net cash
farm earnings versus decreases over the next three to six
months compared with earnings of a year earlier: 89 percent to 3 percent for crops, 52 percent to 7 percent for dairy,
and 33 percent to 24 percent for cattle and hogs. Bucking
typical patterns, prices for corn and soybeans increased
during harvest for a second year in a row. With U.S. soybean production forecast to fall 19 percent from 2006 to
2.59 billion bushels (estimates from the U.S. Department
of Agriculture), higher soybean prices would not be surprising. However, a record U.S. corn harvest of 13.2 billion bushels, an increase of 25 percent from 2006, would
usually be expected to bring lower corn prices. Yet, higher

demand for ethanol production and exports have helped
support corn prices this fall. Corn will also be competing
with soybeans for acres to plant next spring. Even with
higher feed costs, livestock producers should also see
gains in net cash farm earnings according to the responding bankers.
Agricultural exports have provided an important
boost to farm income in key categories for the District. In
fiscal year 2007 the value of U.S. exports increased 44 percent for corn, 34 percent for soybeans, 38 percent for dairy
products, and 28 percent for red meats (data from the
U.S. Department of Agriculture). Overall, U.S. agricultural
exports increased in value by 19 percent from fiscal year
2006. The slide in the value of the U.S. dollar has lowered
relative prices for foreign importers, making U.S. exports
more attractive to buyers in many countries. So, income
in the farm sector should continue to benefit from favorable conditions for U.S. agricultural exports.

Credit conditions
In a turnaround from a year ago, credit conditions improved in the third quarter of 2007. Demand for non-realestate loans grew for the fifteenth consecutive quarter at
surveyed banks. With 33 percent of the bankers reporting higher demand for non-real-estate loans from a year
earlier and 15 percent reporting a decline in demand, the
index of loan demand was 118 (see table on the next page).
Half of Iowa’s bankers reported higher non-real-estate
loan demand, whereas Michigan and Wisconsin had more
reports of lower demand than reports of higher demand.
Funds availability kept growing during July through
September for the fourth consecutive quarter. With 24 percent of the bankers reporting they had more funds available during the third quarter of 2007 than they had a year
earlier and 6 percent reporting they had less, the index of
funds availability was 118. Collateral requirements at
District banks were tighter than last quarter, with 8 percent demanding increased amounts of collateral.
2. Quarterly District farm loan interest rates

percent
13

11

Farm
Farm
operating
operating

9
Farm real
Farm real
estate
estate
7

5
1991

’95

’99

2003

’07

Credit conditions at Seventh District agricultural banks
		
		
		
		

	
	
	
	
	
Interest rates on farm loans
						
Loan	
Funds	
Loan	
Average loan-to-	
Operating	
Feeder	
Real
demand	
availability	
repayment rates	
deposit ratio	
loansa	
cattlea	
estatea

		

(index)b	

(index) b	

(index)b	

2005
	 Jan–Mar	
	 Apr–June	
	 July–Sept	
	 Oct–Dec	

117	
119	
115	
120	

112	
101	
97	
110	

116	
103	
87	
90	

74.4	
76.3	
76.9	
75.8	

7.07	
7.33	
7.68	
8.02	

7.08	
7.30	
7.65	
7.95	

6.63
6.74
7.02
7.25

2006
	 Jan–Mar	
	 Apr–June	
	 July–Sept	
	 Oct–Dec	

131	
115	
124	
109	

102	
101	
95	
116	

87	
85	
87	
130	

76.7	
78.0	
79.1	
76.6	

8.30	
8.76	
8.73	
8.71	

8.27	
8.66	
8.70	
8.70	

7.48	
7.85
7.82
7.74

2007
	 Jan–Mar	
	 Apr–June	
	 July–Sept	

128	
121	
118	

113	
115	
118	

131	
117	
121	

78.4	
77.8	
78.1	

8.61	
8.65	
8.42	

8.60	
8.63	
8.40	

7.67
7.70
7.53

(percent)	

(percent)	

(percent)	

(percent)

Note: Historical data on Seventh District agricultural credit conditions is available for download from the AgLetter homepage, www.chicagofed.org/economic_research_and_data/ag_letter.cfm.
a
At end of period.
b
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.

Non-real-estate farm loan repayment rates improved
in 2007 from the third quarter of 2006. With 25 percent of
the bankers reporting higher rates of loan repayment and
4 percent reporting lower rates, the index of loan repayment
rates was 121. In addition, loan renewals and extensions
were down from those in July, August, and September a
year ago, with 5 percent of the bankers indicating an increase and 25 percent indicating a decrease. None of the
states showed slippage in loan repayment rates, and none
had higher levels of renewals and extensions. Illinois and
Iowa had the highest percentages of banks report improvements in these measures.
Interest rates on agricultural loans were the lowest
since the first quarter of 2006 (see chart 2 and table). As
of October 1, the District average for interest rates on
new operating loans fell to 8.42 percent. Interest rates on
operating loans ranged from 8.12 percent in Illinois to
8.69 percent in Iowa. Interest rates for farm real estate loans
slid to 7.53 percent. Iowa had the lowest rate for farm
mortgages, 7.42 percent, and Wisconsin had the highest
rate, 7.82 percent.

Looking forward
Credit conditions should improve further during the fall
and winter, according to the respondents. More bankers
(59 percent) expected the volume of farm loan repayments
to rise over the next three to six months compared with a
year ago than decline (3 percent), especially in Illinois and
Iowa. Moreover, only 4 percent of the respondents anticipated an increase, versus 51 percent a decrease, in forced
sales or liquidation of farm assets among financially stressed
farmers this fall and winter.

For the fourth quarter of 2007, 35 percent of the
bankers expected higher non-real-estate loan volume and
15 percent expected lower volume than in 2006. Respondents
predicted increases in operating loans (27 percent more
forecasted increases rather than decreases), farm machinery
loans (46 percent), and grain storage construction loans
(32 percent), while they predicted declines for Farm Service
Agency guaranteed loans and livestock loans. More bankers
forecast higher (23 percent) rather than lower (9 percent)
real estate loan volume during October through December.
Wisconsin was the only state where expectations for lower operating or real estate loan volume predominated.
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.
© 2007 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	

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.)	

October	
October	
October	
October	
October	
October	
October	
October	
October	
October	
October	

142	
149	
3.29	
133.00	
8.58	
8.02	
132	
43.30	
96.7	
21.2	
93.6	

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

October	
October	

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.)*	
Agricultural exports (mil. dol.)	
	 Corn (mil. bu.)	
	 Soybeans (mil. bu.)	
	 Wheat (mil. bu.)	
Farm machinery (units)
	 Tractors, over 40 HP	
	 	 40 to 100 HP	
	 	 100 HP or more	
	 Combines	

Year	
ago	

Two years
ago

0.7	
4.9	
0.0	
0.8	
4.9	
18.8	
–5.0	
–7.9	
–1.4	
–2.3	
–12.5	

23	
31	
29	
22	
55	
75	
14	
–8	
3	
56	
73	

28	
46	
81	
36	
51
134	
8
–8	
1
37	
83

209	
206	

0.2	
0.4	

4	
4	

5	
7

September 1	
September 1	
September 1	
October	
October	
October	

1,304	
573	
1,717	
2.44	
2.15	
14.2	

N.A.	
N.A.	
N.A.	
16.5	
22.9	
3.4	

–34	
28	
–2	
9	
11	
4	

–38	
124	
–11	
17	
18
6

September	
September	
September	
August	

7,693	
213	
61	
155	

2.2	
10.2	
17.3	
89.1	

43	
9	
–6	
94	

66	
61
79	
79

October	
October	
October	
October	

10,420	
7,126	
3,294	
672	

34.7	
20.5	
80.8	
–31.3	

9	
1	
32	
6	

8	
4	
17
23

N.A. Not applicable.
*23 selected states.
Sources: Author's calculations based on data from the U.S. Department of Agriculture, U.S. Bureau of Labor Statistics, and the Association of Equipment Manufacturers.

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