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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago

AgLetter

Number 1952	

May 2011

FARMLAND VALUES AND CREDIT CONDITIONS

SAVE THE DATE

Summary
At 16 percent, the year-over-year increase in farmland values
in the first quarter of 2011 for the Seventh Federal Reserve
District was the largest since 2007 and was last surpassed
in 1979. The quarterly increase in the value of “good” agricultural land was 5 percent, tabulated from 220 surveys
submitted by District bankers. District cash rental rates for
agricultural land in 2011 jumped 16 percent higher compared with 2010. There was more demand to purchase farmland in the six months ending with March 2011 relative
to that of the six months ending with March 2010. Farmers
(rather than investors) purchased a higher proportion of
the acres sold as well. Moreover, the number of farms sold,
the acreage sold, and the amount of farmland for sale grew.
Over half the reporting bankers expected farmland values
to continue rising during the second quarter of 2011.

On November 15, 2011, the Federal Reserve Bank of
Chicago will hold a conference to explore the factors
contributing to large increases in farmland values and
cash rental rates in the Midwest. Details are forthcoming
on www.chicagofed.org and in the next issue of AgLetter.

8.4 percentage points below the level preferred by the
respondents on average.

Farmland values
The surge in District farmland values continued, with a
16 percent increase for the first quarter of 2011 compared
with the first quarter of 2010 (see map and table below).
Illinois, Indiana, and Iowa led the way with year-over-year
increases in the value of “good” agricultural land of 17 percent, 19 percent, and 20 percent, respectively. Michigan
and Wisconsin farmland values showed solid gains of
11 percent and 9 percent, respectively. The quarterly increase in District farmland values was 5 percent—more
than double the quarterly increase of a year ago. Illinois
and Indiana had the biggest quarterly increases (8 percent
for each). The latest gains were spurred by higher commodity prices, which prompted farmers to buy additional land.

Although there was weaker demand for non-realestate farm loans compared with the first quarter of 2010,
the credit conditions for farmers strengthened overall. The
availability of funds for lending was higher than a year
earlier. Loan repayment rates increased, while renewals
and extensions of agricultural loans decreased. Agricultural interest rates seemed to edge up after hitting bottom
at the start of 2011. The average loan-to-deposit ratio of
69.8 percent was the lowest in 14 years; this value was

Farmers tended to outbid investors for agricultural
land at auctions, according to some respondents. The

Percent change in dollar value of “good” farmland
Top:
January 1, 2011 to April 1, 2011
Bottom: April 1, 2010 to April 1, 2011
	
	
	

Illinois	
Indiana	
Iowa	
Michigan 	
Wisconsin	
Seventh District	

January 1, 2011	
to	
April 1, 2011	

+   	
8
+  	
8
+  	
4
+  	
3
+  	
4
+  	
5

XII

VI
+5
+5

April 1, 2010		
to
April 1, 2011

+  7
1
+  9
1
+  0
2
+11
+ 
9
+16

II

I
+8
+23

+3
+22

+1
III +20

VII
+3
+13

+3 IV
+14

XIV

*

X
+6
+18 VIII

V

*

+2
+17

*Insufficient response.

*

IX
+9
+18

XV

+7
+19

XI
+9
+16

XVI

+9
+19

as the ratio of indexes based on average farmland values
per acre and cash rental rates per acre (the latter representing the earnings potential of farmland).

1.	 Annual percentage change in Seventh District farmland
	 cash rental rates adjusted by PCE
percent

20

10

0

–10

–20
1981 ’84

’87

’90

’93

’96

’99

2002

’05

’08

’11

Sources: Author’s calculations based on data from Federal Reserve
Bank of Chicago farmland value surveys; and U.S. Bureau of Economic
Analysis, Personal Consumption Expenditures (PCE) Price Index, from
Haver Analytics.

reporting bankers thought farmers bought an even higher
share of farmland than during the prior year; 48 percent of
the respondents saw an increasing share of land purchased
by farmers and only 6 percent saw a decreasing share in
the period from October 2010 through March 2011. With
75 percent of the bankers observing higher demand for
the purchase of farmland and just 1 percent observing
lower demand, the market for farmland was ripe for fastrising land values. More farmland was up for sale over
the winter and early spring relative to a year ago, according to 31 percent of respondents, while 26 percent noted
less farmland was up for sale in their areas. The number
and acreage of farms sold were larger than a year ago, as
about 10 percent more of the bankers reported increases
rather than decreases with regard to these quantities.
Cash rental rates for agricultural land in 2011 rose
sharply relative to 2010—the only year over the past five
that had an increase of less than 7 percent. District cash
rents climbed 16 percent from 2010. Cash rental rates were
up 14 percent in Illinois, 15 percent in Indiana, 16 percent in
Iowa, 18 percent in Michigan, and 20 percent in Wisconsin.
After adjusting for inflation using the Personal Consumption
Expenditures Price Index, District cash rental rates increased
14 percent from 2010 (see chart 1). This increase was the
second largest, behind that of 2008, since tracking of District
cash rents began in 1981.
With the increase in farmland values matching that
for cash rental rates, there was no change in the price-toearnings (P/E) ratio for agricultural land (see chart 2).
The unchanged P/E ratio indicated relatively balanced
demand to purchase versus rent farmland. In an asset
valuation model, the present price of an asset should reflect both current profitability and expectations for future
earnings. The P/E ratio for farmland can be constructed

Both cash rental rates and farmland values rose because of higher agricultural prices, especially crop prices.
Prices in the first quarter of 2011 averaged $5.37 per bushel
for corn and $12.33 per bushel for soybeans, according to
the U.S. Department of Agriculture (USDA). From the fourth
quarter of 2010, corn prices increased 18 percent and soybean prices increased 12 percent. Compared with a year
ago, corn prices were 50 percent higher and soybean prices
were 29 percent higher. Projections of tight stocks for both
corn and soybeans helped elevate and maintain higher
prices. For the 2011–12 crop year, the USDA estimated
price intervals of $5.50 to $6.50 per bushel for corn and
$12.00 to $14.00 per bushel for soybeans. Milk, hog, and
cattle prices were all up at least 20 percent from the first
quarter of 2010. Prices for these products are forecasted
by the USDA to remain above the levels of the first quarter
of 2011 throughout the rest of this year (partly supported
by strong global demand). Based on the USDA index of
prices paid by farmers, the increase in input costs for
agriculture was 9.4 percent in the first quarter of 2011
compared with the first quarter of 2010. So, agriculture
overall saw higher profit levels in the past year—a trend
that will likely continue in upcoming quarters.
Cash-renting agricultural land, although increasingly
with clauses that allow owners to benefit when crop prices
increase further, remained the dominant method (80 percent) in the District for farms operated by someone other
than the owner. With 16 percent of farmland on crop shares,
1 percent on a bushel basis, and 3 percent on other arrangements, there appeared to be an inclination by owners to
get more involved in farm operations and garner higher
returns in 2011. Illinois remained the District state with
the lowest percentage of cash rentals (68 percent), even
as rentals on a crop share basis diminished (26 percent).
2. Seventh District price-to-earnings ratio for farmland
index, 1981 = 1.00

1.50

1.25

1.00

0.75

0.50
1981 ’84

’87

’90

’93

’96

’99

2002

’05

’08

Source: Author’s calculations based on data from Federal Reserve
Bank of Chicago farmland value surveys.

’11

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

		

b
(index)  	

b
(index)  	

b
(index)  	

2009
	 Jan–Mar	
	 Apr–June	
	 July–Sept	
	 Oct–Dec	

116	
88	
95	
102	

112	
118	
121	
125	

105	
93	
89	
92	

2010
	 Jan–Mar	
	 Apr–June 	
	 July–Sept 	
	 Oct–Dec	

109	
98	
90	
101	

127	
122	
138	
142	

81	

149	

2011
	 Jan–Mar	

(percent)	

(percent)	

(percent)	

(percent)

76.2	
77.3	
75.3	
75.4	

6.20	
6.18	
6.17	
6.23	

6.31	
6.36	
6.35	
6.40	

6.14
6.16
6.13
6.13

79	
85	
114	
142	

73.7	
74.5	
73.2	
71.8	

6.13	
6.12	
6.05	
5.85	

6.25	
6.25	
6.14	
6.02	

6.04
5.99
5.81
5.70

146	

69.8	

6.01	

5.93	

5.80

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 percentage of bankers that responded “lower” from the percentage that responded “higher” and adding 100.
Note: Historical data on Seventh District agricultural credit conditions are available for download from the AgLetter webpage, www.chicagofed.org/webpages/publications/agletter/index.cfm.

a

b

Credit conditions
Agricultural credit conditions improved in the first quarter of 2011. Stronger farm income helped stabilize balance
sheets yet also dampened the demand for non-real-estate
farm loans. The index of non-real-estate agricultural loan
repayment rates hit its highest level in three years (146)
for the first quarter of 2011, as 49 percent of the respondents
noted higher rates of repayment and only 3 percent noted
lower rates. Loan renewals and extensions also improved,
as 36 percent of the bankers reported fewer renewals and
extensions from January through March of 2011 than over
the same period in the previous year and 5 percent reported
more. For the first time since 1987, the index of funds
availability reached 149, given that half of the respondents
had additional funds available to lend.
Farmers had less need to seek bank loans. The index
of demand for non-real-estate farm loans dropped to a post1987 low of 81, illustrating this point. (Of the reporting
bankers, 19 percent of them observed higher loan demand,
while 38 percent observed lower demand.) Not surprisingly,
the average loan-to-deposit ratio declined to 69.8 percent,
the lowest level since 1997. The share of banks below their
desired level was 77 percent. Also, collateral requirements
tightened again from a year ago, with 14 percent of banks
requiring more collateral during January through March
of 2011 and 1 percent requiring less. The percentage of
loans guaranteed by the Farm Service Agency (FSA) of
the USDA remained above 5 percent of the District farm
loan portfolio, largely because of heavy use of the FSA
guarantees at a small number of banks.
Interest rates on agricultural loans ended their
downward trend that started after the last peak in 2006.
New farm operating and real estate loans averaged 6.01
percent and 5.80 percent, respectively, as of April 1, 2011.

Looking forward
The rapid increase in agricultural land values may not be
over, according to survey respondents. For the second
quarter of 2011, 56 percent of the responding bankers expected farmland values to continue rising in their areas
and 2 percent expected a decline.
Respondents anticipated that the volume of non-realestate farm loans would decrease during the period from
April through June of 2011 compared with the same period
of 2010. The bankers forecasted smaller volumes for operating, feeder cattle, dairy, and FSA guaranteed loans. Farm
machinery, grain storage construction, and real estate loan
volumes were expected to increase in the second quarter of
2011 compared with the second quarter of 2010. Also, there
was an indication that dairy loan volumes in Wisconsin
were poised to rise after several challenging years.
David B. Oppedahl, business economist
AgLetter (ISSN 1080-8639) is published quarterly by the
Economic Research Department of the Federal Reserve Bank
of Chicago. It is prepared by David B. Oppedahl, business
economist, and members of the Bank’s Economic 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 or the Federal
Reserve System.
© 2011 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 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)	
	 	 Barrows & gilts ($ per cwt.)	
	 	 Steers & heifers ($ per cwt.)	
	 	 Milk ($ per cwt.)	
	 	 Eggs ($ per doz.)	

April	
April	
April	
April	
April	
April	
April	
April	
April	
April	
April	

174	
195	
6.40	
141.00	
12.80	
8.18	
156	
68.40	
124.00	
19.70	
1.05	

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

April	
April	

Year	
ago	

Two years
ago

1.2	
0.5	
15.7	
13.7	
0.8	
8.5	
2.6	
7.4	
5.1	
– 3.4	
23.7	

26	
30	
88	
31	
35	
85	
22	
21	
23	
35	
37	

35
29
66
12
31
42
39
55
40
66
14

224	
226	

0.4	
0.4	

3	
3	

5
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	
March	
March	
March	

6,523	
1,249	
1,424	
2.27	
2.06	
15.8	

N.A.	
N.A.	
N.A.	
12.1	
16.2	
12.9	

–15	
– 2	
5	
2	
1	
3	

– 6
– 4
37
6
4
4

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

March	
March	
March	
March	

13,324	
171	
124	
121	

11.0	
31.7	
– 28.0	
14.6	

35	
–11	
– 6	
64	

66
–1
22
57

	
April	
April	
April	
April	

	
8,356	
4,824	
3,532	
764	

	
N.A.	
N.A.	
N.A.	
N.A.	

	
3	
– 3	
11	
21	

– 3
–12
13
36

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, the Association of Equipment Manufacturers, 	
and Haver Analytics.

	

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