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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1939	

AgLetter
FARMLAND VALUES AND CREDIT CONDITIONS

February 2008

Farmland values
With a 16 percent annual increase for 2007 in the value of
“good” agricultural land in the District, annual gains averaged 12 percent from 2004 through 2007. Adjusted for inflation, annual farmland values still rose an average of
8 percent per year over the past four years, versus an average of 2 percent during the previous 15 years (see chart 1
on next page). Iowa led the District with an 18 percent
annual increase (see table and map below). Indiana was
next with a 16 percent annual gain, followed by Illinois and
Michigan with 15 percent annual gains. Wisconsin trailed
with an 11 percent annual increase in farmland values. All
District states had similar gains in farmland values in the
fourth quarter as they had experienced in the third quarter, though some were slightly stronger.

Summary
The largest annual increase in farmland values, 16 percent,
in almost three decades highlighted an amazing year for
agriculture in the Seventh Federal Reserve District. The
values of both crop and livestock production set records
in 2007 for the U.S. and, in all likelihood, the District. Based
on 265 surveys returned by District agricultural bankers,
the quarterly rise in the value of “good” agricultural land
was 6 percent in the fourth quarter of 2007. Over half of
the respondents expected farmland values to keep going
up in the first quarter of 2008.
Agricultural credit conditions in the District
strengthened in the fourth quarter of 2007. The index of
non-real-estate farm loan repayment rates shot up to the
highest value on record, while loan renewals and extensions dropped from a year ago. The index of funds availability was higher than at any point in the last four years.
Loan demand softened in the fourth quarter of 2007, but
was still higher than the previous year. Agricultural interest rates fell to their lowest levels in two years. Loanto-deposit ratios averaged 77.2 percent for the fourth
quarter of 2007, with 59 percent of banks below their
desired ratio.

Higher net farm income boosted farmland values
toward the end of 2007 as corn and soybean prices moved
even higher than a year ago. December cash corn prices
rose to $3.76 per bushel, 25 percent above those in December
2006. Cash soybean prices jumped to $10.00 per bushel in
December, 62 percent higher than the previous year’s
prices. National production estimates for 2007 from the
U.S. Department of Agriculture (USDA) were a record
13.1 billion bushels for corn and 2.59 billion bushels for
soybeans. The harvest was 24 percent above that of 2006
for corn and 19 percent below that of 2006 for soybeans.

Percent change in dollar value of “good” farmland
Top:
October 1, 2007 to January 1, 2008
Bottom: January 1, 2007 to January 1, 2008
	
	
	
Illinois	
Indiana	
Iowa	
Michigan 	
Wisconsin	
Seventh District	

October 1, 2007	
to	
January 1, 2008	
+6	
+6	
+6	
+9	
+2	
+6	

January 1, 2007	
to
January 1, 2008
+15
+16
+18
+15
+11
+16

VI
+4
+11
I
+5
+20

II
+11
+24
+6
III +19

+3
+14

*
VII
–1
+9

IV

XIV
*

X
+8
+9 VIII

V
+3
+15

*Insufficient response.

XII

*

IX
+9
+22

XV

XI
+5
+16

XVI

+7
+11

+5
+19

the strong run of increases in farmland values from 2004
to 2007, there was room for continued increases, as expected by District bankers, before approaching new records in real terms.

1. Annual percentage change in Seventh District farmland
values adjusted by CPI-U
percent
30
20
10
0
–10
–20
–30
1971

’77

’83

’89

’95

2001

’07

Sources: Author's calculations based on data from Federal Reserve Bank of
Chicago farmland value surveys; and U.S. Bureau of Labor Statistics, Consumer
Price Index for All Urban Consumers (CPI-U).

From a year earlier, District production increased
18 percent for corn and decreased 22 percent for soybeans.
District states produced 49 percent of U.S. corn output
and 43 percent of U.S. soybean output (both slightly down
from a year ago).
Increasing demand for corn to produce ethanol
(3.2 billion bushels) and for export (2.45 billion bushels)
contributed to the record projected total corn usage of
13.0 billion bushels in the 2007–08 marketing year. This
pace of demand would leave U.S. ending corn stocks at
1.44 billion bushels, corresponding to a stocks-to-use ratio
of 11 percent. In addition, soybean usage of 3.01 billion
bushels would result in a stocks-to-use ratio of 5.3 percent.
These relatively low supplies of corn and soybeans, along
with low wheat stocks, urged cash and futures prices
upward.
The value of crop production in the U.S. surged to
$150 billion in 2007; the value of livestock production
jumped to $142 billion. After accounting for input costs
and payments to laborers, creditors, and landlords, net
farm income grew to $88.7 billion in 2007 from $59.0 billion in 2006, according to the USDA.
Especially given record cash receipts for corn and
soybeans, 56 percent of respondents expected farmland
values to continue increasing in the first quarter of 2008.
Just 2 percent of the bankers expected land values to decrease, and 42 percent expected values to remain the
same from January through March.
An index of nominal farmland values showed that
by 2007 there had been almost a doubling since the previous peak in 1981 (see chart 2). Yet, when adjusted for
inflation, farmland values remained 25 percent below
their 1979 peak. Real farmland values have more than
doubled from their low in 1986, however. So, even with

Credit conditions
Record net farm income also boosted credit conditions in
the District. The index of non-real-estate farm loan repayment rates surged to 148 in the fourth quarter of 2007,
the highest level ever for the survey, with 52 percent of
the bankers reporting higher rates of loan repayment and
4 percent reporting lower rates. Less than 3 percent of the
volume of the banks’ agricultural loan portfolios was classified as having major or severe repayment problems—a
percentage point lower than a year ago. The volume of
farm loans with minor repayment problems dipped also,
as 92 percent of loan volume had no significant repayment
problems. Even so, bankers expressed concerns that livestock producers faced greater stress from increased feed
costs and decreased livestock prices. All District states
experienced more favorable repayment conditions.
Demand for non-real-estate loans during October,
November, and December of 2007 increased from the level
of the previous year’s fourth quarter, although more weakly
than the other quarters in 2007. The index of loan demand
decreased to 110, as 32 percent of respondents saw a rise
in the demand for non-real-estate loans and 22 percent
saw a fall. Wisconsin was the only District state with lower non-real-estate loan demand for the fourth quarter of
2007 compared with a year earlier. The rate of renewals
and extensions of loans in the fourth quarter of 2007 was
lower than in the fourth quarter of 2006, as 37 percent of
District bankers indicated lower renewals and extensions
than a year ago and just 6 percent indicated higher levels.
The year-over-year improvement in funds availability was the largest in almost four years. The index of funds
availability was 125, with 30 percent of the respondents
2. Indexes of Seventh District farmland values
1981=100
200

160

Nominal
farmland values

Farmland values
adjusted by CPI-U

120
80
40
0
1971

’75

’79

’83

’87

’91

’95

’99

2003

Sources: Author's calculations based on data from Federal Reserve Bank
of Chicago farmland value surveys; and U.S. Bureau of Labor Statistics,
Consumer Price Index for All Urban Consumers (CPI-U).

’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	
	 Oct–Dec	

128	
121	
118	
110	

113	
115	
118	
125	

131	
117	
122	
148	

78.4	
77.8	
78.1	
77.2	

8.61	
8.65	
8.42	
7.82	

8.60	
8.63	
8.40	
7.89	

7.67
7.70
7.53
7.09

(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.

reporting higher funds availability and 5 percent lower.
Collateral requirements were slightly tighter at District
banks, as 11 percent raised the amount of collateral required
during the October–December period in 2007. More bankers
than a year ago indicated a tightening of credit standards
for agricultural loans in the fourth quarter versus the
previous year, but there also were more bankers who reported easing standards. As was the case the previous
year, only 1 percent of District customers with operating
credit were not likely to qualify for new credit in 2008,
according to respondents.
Interest rates for agricultural loans declined to the
lowest levels in two years. As of January 1, 2008, the
District averages for interest rates were 7.82 percent on
new operating loans and 7.09 percent on farm real estate
loans. Interest rates on agricultural loans were lowest in
Illinois (7.49 percent on operating loans and 6.93 percent
on farm mortgages). Interest rates on agricultural loans
were highest in Michigan (8.10 percent on operating
loans and 7.44 percent on farm mortgages).

Looking forward
For January, February, and March of 2008, 41 percent of
the respondents expected higher non-real-estate loan
volumes, while 16 percent expected lower volumes. Higher
loan volumes were anticipated for operating, farm machinery, and grain storage construction loans. With little
change in dairy loans, lower volumes were anticipated
for feeder cattle loans and loans guaranteed by the Farm
Service Agency. The volume of mortgages on agricultural
real estate will continue to grow, with 32 percent of the

bankers expecting higher real estate loan volumes in the first
quarter of 2008 and 9 percent expecting lower volumes.
Even more strongly than last year, respondents forecast this year’s capital expenditures by farmers to increase
from the previous year’s levels. With 55 percent expecting
higher spending on land purchases, improvements, buildings, and facilities in 2008 than in 2007, the agricultural
sector contrasted sharply with the downturn in residential
real estate and construction. And with only 2 percent of
respondents expecting lower purchases, 83 percent of the
bankers thought purchases of machinery and equipment
would climb in 2008, and 67 percent thought that truck
and auto purchases by farmers would rise.
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.
© 2008 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.)	

January	
January	
January	
January	
January	
January	
January	
January	
January	
January	
January	

150	
167	
4.28	
129.00	
11.00	
8.55	
132	
37.30	
95.2	
20.7	
1.290	

4.2	
10.6	
13.8	
–3.0	
10.0	
10.5	
–2.9	
–7.7	
0.1	
–3.7	
–5.1	

22	
27	
40	
18	
73	
89	
14	
–14	
6	
43	
41	

34	
56	
114	
39	
87	
143	
13
–9	
–6	
44	
44

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

January	
January	

211	
209	

0.5	
0.9	

4	
5	

6	
7

December 1	
December 1	
December 1	
January	
January	
January	

10,269	
2,329	
1,128	
2.23	
2.16	
14.6	

N.A.	
N.A.	
N.A.	
8.3	
9.4	
1.6	

15	
–14	
–14	
3	
14	
2	

5	
–7	
–21	
9	
19	
5

December	
December	
November	
November	

9,129	
198	
127	
121	

–5.2	
–22.5	
–8.5	
–25.1	

37	
7	
1	
94	

60	
12
–10	
49

January	
January	
January	
January	

5,670	
3,727	
1,943	
451	

–40.8	
–43.0	
–36.2	
–50.8	

–8	
–20	
25	
12	

–14	
–20	
1
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.)*	
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	

	
	

	
	

	
	
	

	

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