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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago

AgLetter

Number 1959	

FARMLAND VALUES AND CREDIT CONDITIONS

Farmland values
Toward the end of 2012, the increases in farmland values
seemed to pick up their pace. District agricultural land
values gained 7 percent from the third quarter to the fourth
quarter of 2012, amid reports of strong farmland sales in
the face of impending and uncertain changes in federal
tax policies. The 16 percent year-over-year increase in
farmland values in the fourth quarter of 2012 was a bit
higher than the year-over-year increases recorded for the
previous two quarters. And although the District’s annual
increase of 16 percent in the value of “good” farmland for
2012 was a little lower than that for 2011, it was still the
third-largest increase since the late 1970s (see chart 1 on
next page). Illinois, Michigan, and Iowa saw year-over-year
jumps in agricultural land values for the fourth quarter of
2012 that exceeded the annual increase for the District,
while Indiana and Wisconsin experienced more modest
year-over-year gains (see table and map below).

Summary
The annual increase in “good” farmland values was
16 percent in 2012 for the Seventh Federal Reserve District.
In spite of the drought last year, the annual increase for
2012 was just a notch below those of 2007 and 2011. Relative to the third quarter of 2012, agricultural land values
climbed 7 percent in the fourth quarter, according to survey respondents from 212 agricultural banks across the
District. On the whole, respondents anticipated farmland
values to rise further during the January through March
period of 2013.
Overall, agricultural credit conditions strengthened
in the fourth quarter of 2012 compared with the fourth
quarter of 2011. Non-real-estate loan demand relative to a
year ago was lower during the fourth quarter of 2012, but
not nearly as much as it had been during the previous seven
quarters. Funds availability and farm loan repayment rates
were up in the October through December period of 2012
compared with the same period of 2011, and rates of loan
renewals and extensions were down. At the end of the
fourth quarter of 2012, agricultural interest rates were at
their lowest in the history of the District’s survey. Moreover, the loan-to-deposit ratios for reporting banks averaged 67.2 percent—the second-lowest level since 1996.

February 2013

After adjusting for inflation, the District’s 2012 annual
increase in agricultural land values (14 percent) was the
third largest in 35 years. Moreover, 2012 marked the third
consecutive year of significant jumps in agricultural land
values: More specifically, farmland values experienced a
cumulative rise of 52 percent over the period 2010–12,
matching the fastest gain of the 1970s boom (over the period
1974–76) in real terms. By the end of 2012, the compound

Percent change in dollar value of “good” farmland
Top:
October 1, 2012 to January 1, 2013
Bottom: January 1, 2012 to January 1, 2013
	
	
	

October 1, 2012	
January 1, 2012
to	to
January 1, 2013	
January 1, 2013

Illinois	
+ 9	
+18
Indiana	
+7	
+ 10
Iowa	
+8	+20
Michigan 	 +3	+18
Wisconsin	+6	+11
Seventh District	+7	
+16

XII

VI
+9
+12

II

I
+5
+20

+7
+22

+6
III +12

+10
+20

VII
0
+10

IV

XIV

*

X
+7
+10 VIII

V

+12
+24

*Insufficient response.

*

*

IX
+13
+24

*

XV

XI
+9
+20

XVI
*

1. Annual percentage change in Seventh District farmland values
percent
30

20
10
0
−10
−20
−30
1970

’76

’82

’88

’94

2000

’06

’12

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

annual growth rate for farmland values (adjusted for inflation) was 5.8 percent since its 1986 nadir. During 2012,
the index of inflation-adjusted agricultural land values
once again established a record for the District, as it had
every year since 2007 (see chart 2).
Perhaps the most surprising aspect of 2012’s strong
gain in farmland values was that it occurred in the midst
of the worst drought in the Midwest since 1988. Although
by some measures last year’s drought was more severe than
1988’s, the losses at harvest in 2012 were not as significant
as those experienced in 1988. Based on U.S. Department of
Agriculture (USDA) data, the District’s 2012 production
decreased 25 percent for corn and 9.4 percent for soybeans
from 2011. The District’s corn and soybean harvests in 2012
were the lowest since 2002 and 2007, respectively. For the
nation, the USDA placed corn yields at 123 bushels per acre
and soybean yields at 39.6 bushels per acre in 2012 (down
16 percent and 5.4 percent, respectively, from 2011). The
District corn yield fell from 2011 by 26 percent to 119 bushels
per acre in 2012—its lowest level since 1995. And the
District soybean yield moved down from 2011 by 9.5 percent
to 43.5 bushels per acre in 2012—its lowest level since 2003.
By comparison, in 1988, corn yields plummeted from 1987
by 30 percent for the United States and by 39 percent for
the District, and soybean yields plunged by 20 percent
for the nation and by 29 percent for the District.
The drought contributed to crop prices rising substantially in 2012 relative to 2011, so a rebound in production in 2013 could trigger price declines. Corn, soybean,
and wheat prices were higher, on average, by 10.9 percent, 11.4 percent, and 2.2 percent, respectively, in 2012
than in 2011. While feed costs rose, milk and hog prices
fell 8.1 percent and 3.4 percent on a year-over-year basis,
respectively. (These figures were computed from USDA
price data.) The squeeze on livestock producers was evident in the most recent estimates of farm assets by the
USDA. Following a 3.6 percent slide from 2011, the 2012

value of the national stock of livestock and poultry was
the lowest in real terms since 1960, when the data start.
In contrast, farm real estate assets grew 6.0 percent from
2011 to 2012, according to the USDA. Moreover, livestock
and poultry fell to 3.1 percent of total farm assets in 2012,
while real estate assets climbed to 86.3 percent of the total
last year.

Credit conditions
The District’s agricultural credit conditions showed improvement in the fourth quarter of 2012 compared with
the fourth quarter of 2011. Demand for non-real-estate
farm loans in the October through December period of
2012 was very near the level of the same period of 2011.
Moreover, demand for non-real-estate farm loans relative
to a year ago was down much less in the fourth quarter
of 2012 than in the previous seven quarters. So, the index
of loan demand rose to 96 in the fourth quarter of 2012,
with 24 percent of respondents noting an increase in the
demand for non-real-estate loans and 28 percent noting a
decrease. Additional funds were available to lend in the
fourth quarter of 2012, with bank deposits boosted by crop
sales and insurance indemnities. As of early February 2013,
$3.93 billion had been paid out for insured 2012 agricultural
losses in the five District states (29 percent of the U.S. total
of $13.7 billion). The index of funds availability crept up
to 151, as funds availability was higher at 54 percent of
the reporting banks and lower at 3 percent.
The index of non-real-estate farm loan repayment
rates was not as high as earlier in the year, but it increased
from the third quarter of 2012. With 40 percent of respondents reporting higher rates of loan repayment compared
with the fourth quarter of 2011 and 5 percent reporting
lower rates, the index of repayment rates was 135 in the
final quarter of 2012. Wisconsin was the only District
state to encounter lower rates of loan repayment. Thirty
percent of respondents reported lower rates of renewals
2. Indexes of Seventh District farmland values
index, 1981=100
500
400

Nominal
farmland values

300
200

Farmland values
adjusted by PCE

100
0
1970

’76

’82

’88

’94

2000

’06

’12

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.

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	
2011
	Jan–Mar	
81	 149	
146	
	Apr–June	
79	 145	
133	
	July–Sept	
81	 149	
133	
	Oct–Dec	
87	 153	
150	
2012
	Jan–Mar	
	Apr–June	
	 July–Sept	
	Oct–Dec	

72	
69	
81	
96	

163	
164	
147	
151	

154	
139	
128	
135	

(percent)	

(percent)	 (percent)	(percent)

69.8	
70.3	
69.0	
68.7	

6.01	
5.75	
5.66	
5.47	

5.93	5.80
5.91	5.62
5.79	5.36
5.65	5.20

66.5	
68.1	
67.5	
67.2	

5.34	
5.27	
5.21	
5.03	

5.54	5.08
5.41	4.94
5.37	4.86
5.24	4.70

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

and extensions during the October through December
period of 2012 versus the same period of the prior year,
while only 6 percent reported higher rates. Given that just
1.6 percent, on average, of the volume of the farm loan
portfolio was reported as having “major” or “severe”
repayment problems in the fourth quarter of 2012, credit
quality for the District registered a slight improvement.
Almost 20 percent of the reporting banks tightened
credit standards for agricultural loans in the fourth quarter
of 2012 relative to the fourth quarter of 2011, and just 1 percent eased credit standards. Ten percent of reporting banks
required larger amounts of collateral to qualify for non-realestate farm loans during the October through December
period of 2012 relative to a year earlier, and 2 percent
required smaller amounts. These findings affirmed that
additional tightening of credit standards had occurred.
Farm loan interest rates dropped to new lows in the
fourth quarter of 2012. As of January 1, 2013, the average
interest rates were 5.03 percent for farm operating loans
and 4.70 percent for agricultural real estate loans.

Looking forward
According to survey respondents, less than 1 percent of
their farm customers with operating credit in 2012 would
not qualify for new operating credit in the new year,
which was slightly lower than the level reported a year ago.
Non-real-estate agricultural loan volumes were expected
to contract in the first quarter of 2013, except for operating
loan volumes, which were predicted to expand, and farm
machinery loan volumes, which were forecasted to hold
steady. Additionally, responding bankers anticipated an
expansion in the volume of farm real estate loans.
Farmers’ capital expenditures—including expenditures on machinery and equipment, trucks and autos, and
buildings and facilities—were forecasted by respondents
to be even higher in 2013 than in 2012. With 43 percent of
the responding bankers anticipating higher levels of land

purchases or improvements in 2013 than in 2012 and
15 percent anticipating lower levels, the survey indicated
that momentum for rising farmland values still exists on
the demand side in the year ahead. While 71 percent of
the responding bankers expected farmland values to be
stable from January through March of 2013, 28 percent
expected farmland values to increase in the first quarter
of 2013. With the USDA predicting net farm income to
rise 14 percent from 2012 to $128.2 billion in 2013, there
would seem to be at least another leg to be run as farmland values continue their upward race.
Although the drought persisted in portions of the
District, its severity had diminished in much of the
Midwest following the harvest, giving more hope for a
rebound in crop yields. Recovery from the drought will
remain a key factor in 2013, as the movements of droughtinfluenced crop prices will affect both crop farmers and
livestock producers.
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.
© 2013 Federal Reserve Bank of Chicago
AgLetter articles may be reproduced in whole or in part,
provided the articles are not reproduced or distributed for
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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		
Prior	
Year	
Two years
period	
Value	 period	ago	 ago

Prices received by farmers (index, 1990–92=100)	January	 217	 9.0	15	31
	 Crops (index, 1990–92=100)	
January	
248	
9.7	
17	
31
		 Corn ($ per bu.)	
January	
6.98	
1.6	
15	
41
		Hay ($ per ton)	
January	 191	 –  
0.5	11	71
		Soybeans ($ per bu.)	
January	 14.10	 –  
1.4	18	22
		Wheat ($ per bu.)	
January	 8.10	 –  
2.3	15	21
	 Livestock and products (index, 1990–92=100)	
January	 168	 1.2	 8	23
		 Barrows & gilts ($ per cwt.)	
January	
63.30	
1.0	
–  1	
12
		 Steers & heifers ($ per cwt.)	
January	 132	 3.1	 2	20
		Milk ($ per cwt.)	
January	
20.00	
–  4.3	
5	
20
		Eggs ($ per doz.)	
January	 1.06	 –  
6.2	21	25
Consumer prices (index, 1982–84=100)	
	Food	
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.)	
	Corn (mil. bu.)	
	Soybeans (mil. bu.)	
	Wheat (mil. bu.)	

December	 231	 0.0	2	5
December	 236	 0.2	2	7
December 1	
8,030	
N.A.	
–  17	
–  20
December 1	
1,966	
N.A.	
–  17	
–  14
December 1	
1,660	
N.A.	
0	
–  14
December	
2.02	
–  8.5	
–  5	
–  11
December	
1.95	
–  6.0	
–  5	
–  5
December	 15.7	 5.4	2	5
December	
December	
December	
December	

13,040	
54	
190	
63	

–  8.8	
–  9.7	
–  25.2	
35.1	

11	
–  69	
28	
–  13	

4
–  66
–  3
–  27

Farm machinery (units)							
	 Tractors, over 40 HP	
December	 6,049	 N.A.	17	26
		 40 to 100 HP	
December	 5,729	 N.A.	 3	15
		 100 HP or more	
December	 4,657	 N.A.	22	30
	Combines	
December	
925	
N.A.	
–  1	
47
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