View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

The Agricultural Newsletter
from the Federal Reserve Bank of Chicago

AgLetter

Number 1972	

May 2016

FARMLAND VALUES AND CREDIT CONDITIONS

SAVE THE DATE

Summary
Agricultural land values in the Seventh Federal Reserve
District fell 4 percent from a year ago in the first quarter
of 2016—their largest year-over-year decline since the third
quarter of 2009. There was a decrease of 1 percent in “good”
farmland values in the first quarter of 2016 relative to the
fourth quarter of 2015, based on the survey responses of
200 District agricultural bankers. Cash rental rates for District
farmland experienced a significant drop of 10 percent for
2016 compared with 2015—even larger than the decrease
of last year relative to 2014. Demand to purchase agricultural land was markedly lower in the three- to six-month
period ending with March 2016 compared with the same
period ending with March 2015. Moreover, the amount of
farmland for sale, the number of farms sold, and the amount
of acreage sold were all down during the winter and early
spring of 2016 compared with a year ago. Nearly two-thirds
of the responding bankers expected farmland values to
decrease during the second quarter of 2016, with the rest
expecting farmland values to remain stable.

On November 29, 2016, the Federal Reserve Bank of Chicago
will hold a conference to examine the agricultural downturn
in the Midwest and discuss future directions for farming.
Additional information about the conference will be released
in the coming months on https://www.chicagofed.org.

higher than a year ago (continuing the pattern of recent
quarters). The availability of funds to lend was slightly
higher than a year earlier. The average loan-to-deposit ratio
edged up to 73.3 percent. Meanwhile, average interest rates
on farm loans declined a bit in the first quarter of 2016.

Farmland values
District farmland values moved down 1 percent in the first
quarter of 2016 relative to the fourth quarter of 2015. Moreover, they fell 4 percent in the first quarter of 2016 relative
to the first quarter of 2015. This year-over-year decline in
the values of District agricultural land extended the string
of quarters without a gain to seven (half of the longest such
string, which occurred during the 1980s). Similarly, the
string of year-over-year declines in Iowa’s farmland values
stretched to ten quarters. All of the District states experienced some deterioration in their agricultural land values
in the first quarter of this year: Illinois, Indiana, Iowa, and
Michigan saw year-over-year declines of 5 percent, 2 percent,
5 percent, and 7 percent, respectively; and Wisconsin saw

Agricultural credit conditions in the District deteriorated further during the first quarter of 2016. Repayment
rates for non-real-estate farm loans were much weaker than
a year ago, and renewals and extensions of these loans were
much higher than a year earlier. In the first quarter of
2016, demand for non-real-estate loans was significantly

Percent change in dollar value of “good” farmland
Top:
January 1, 2016 to April 1, 2016
Bottom: April 1, 2015 to April 1, 2016
	
	
	

January 1, 2016	
April 1, 2015
to	to
April 1, 2016	
April 1, 2016

Illinois	
Indiana	
Iowa	
Michigan 	
Wisconsin	
Seventh District	

– 2	
– 5
+ 4	
– 2
– 1	
– 5
– 1	
– 7
– 2	+1
– 1	
– 4

XII

VI
– 2
+3

I
– 2
– 4

+1
– 9

II
+2
– 4

– 8
III – 6

*
VII
– 2
+3

IV

XIV

*

X
+1
– 5 VIII

V

–1
– 5

*

IX

+ 
4
– 2

*

XI

– 6

– 7

*Insufficient response.

XV
XVI

*

Indiana, 10 percent in Iowa, 2 percent in Michigan, and
7 percent in Wisconsin. After being adjusted for inflation
using the PCEPI, District cash rental rates were down
11 percent from 2015 (see chart 1)—the third consecutive
negative result according to this measure (the last time
this occurred was in 1999–2001).

1.	 Annual percentage change in Seventh District farmland
	 cash rental rates adjusted by PCEPI
percent
20

10

0

−10

−20
1983

’86

’89

’92

’95

’98

2001

’04

’07

’10

’13

’16

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 Price Index (PCEPI),
from Haver Analytics.

a quarterly decrease of 2 percent (though it did experience
a modest year-over-year gain of 1 percent in its farmland
values) (see table and map on front). After being adjusted
for inflation with the Personal Consumption Expenditures
Price Index (PCEPI), the year-over-year decrease in District
farmland values was 5 percent for the first quarter of 2016,
which represented the largest decline since 1987.
Farmland markets were less active in the three- to sixmonth period ending with March 2016 compared with the
same period ending with March 2015. Only 5 percent of
the survey respondents reported higher demand to purchase farmland, while 51 percent reported lower demand.
The supply of farmland for sale was a bit lower than a year
earlier: There was a decrease in the amount of farmland
for sale during the most recent winter and early spring
relative to a year ago, as 20 percent of the responding
bankers reported more farmland was up for sale in their
areas and 34 percent reported less. Likewise, the number
of farms sold was down in the winter and early spring
relative to a year ago, though the amount of acreage sold
dipped to a lesser extent. In a reversal from last year, survey participants observed farmers having slightly decreased
their share of farmland acres purchased (relative to investors)
in the three- to six-month period ending in March 2016
versus the same period ending in March 2015 (10 percent
noted farmers increased their share and 15 percent noted
farmers decreased their share).
In regard to arrangements for District farmland operated by someone other than the owner, about 81 percent
of acres were rented out on a cash basis, 15 percent on a
crop-share basis, 1 percent on a bushel basis, and 3 percent
on other terms. Cash rental rates for farmland in the District
fell a substantial 10 percent for 2016 relative to 2015, eclipsing
last year’s decrease (relative to 2014) as the largest one
since 1987. For 2016, average annual cash rates to lease
farmland were down 9 percent in Illinois, 10 percent in

In 2016, the index of inflation-adjusted farmland cash
rental rates was down more than the index of inflationadjusted agricultural land values (see chart 2). Indeed,
2016’s real cash rental rates were 13 percent below their
level in 1981, whereas real farmland values were still 38 percent above their 1981 level. Given the decrease in cash
rental rates was larger than that in farmland values, the
spread between their respective indexes widened for the
seventh year in a row. This widening gap reflected relatively stronger demand to own farmland than to lease it,
as land values did not fall as much as the earnings potential
of farmland (represented by cash rental rates). Greater uncertainty about the profitability of crop production likely
held down bids by farmers to rent farmland on a cash basis;
there were reports of some farms coming up for lease again
this year after initial rental arrangements fell through.
Not surprisingly, the declines in crop prices of recent years
seemed to lower farmers’ expectations for turning a profit
on leased acres in 2016. Compared with two years earlier,
corn prices were down 21 percent and soybean prices were
down 38 percent in March 2016, according to data from
the U.S. Department of Agriculture (USDA) (see table on
back page). Moreover, real March corn prices have not been
lower since 2006; similarly, real March soybean prices have
not been lower since 2007. (Notably, these data were compiled prior to an April rally in corn and soybean prices.)
Farmland values have not fallen as much as cash rents,
in part because interest rates have stayed quite low, diminishing the lure of alternative investments. Moreover, some
respondents reported there were still potential farmland
buyers with resources to make purchases (especially for
2.	Indexes of Seventh District farmland adjusted by PCEPI
index, 1981=100
200

150

Farmland
values
100

Cash
rental rates
50

0
1981

’86

’91

’96

2001

’06

’11

’16

Note: Both series are adjusted by PCEPI for the first quarter of each year.
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 Price Index (PCEPI), 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	

(percent)	

(percent)	 (percent)	(percent)

2015
	Jan–Mar	
	Apr–June	
July–Sept	
	Oct–Dec	

141	
140	
125	
134	

105	
102	
105	
104	

57	
64	
60	
43	

69.0	
72.1	
72.3	
72.9	

4.80	
4.81	
4.82	
4.96	

4.95	
4.97	
4.96	
5.07	

4.57	
4.64
4.58
4.67

2016
	Jan–Mar	

156	

105	

32	

73.3	

4.91	

5.01	

4.65

At end of period.
Bankers responded to each item by indicating whether conditions in the current quarter were higher or lower than (or the same as) in the year-earlier quarter. The index numbers are computed by
subtracting the percentage of bankers who responded “lower” from the percentage who responded “higher” and adding 100.
Note: Historical data on Seventh District agricultural credit conditions are available for download from the AgLetter webpage, https://www.chicagofed.org/publications/agletter/index.
a

b

higher-quality ground and acres in certain locations);
such buyers lend relatively more support to agricultural
land values than to cash rental rates.

Credit conditions
Agricultural credit conditions were weaker in the first
quarter of 2016 compared with the first quarter of 2015.
The index of repayment rates for non-real-estate farm loans
was 32 for the first quarter of 2016, with no responding
bankers noting higher rates of repayment than a year ago
and 68 percent noting lower rates. This result was a new
low for the survey (the previous record had been set in 1982).
Additionally, 56 percent of the survey respondents reported
higher levels of loan renewals and extensions for the
January through March period of 2016 compared with
the same period last year, while 2 percent reported lower
levels of them. Credit tightening in the first quarter of 2016
was also evident: 28 percent of survey respondents indicated that their banks required larger amounts of collateral
for loans during the January through March period of 2016
relative to the same period last year, while none indicated
that their banks required smaller amounts.
Rising to its highest point since 1979, the index of
demand for non-real-estate farm loans was 156 for the
first quarter of 2016. Sixty-four percent of the responding
bankers observed higher loan demand in the January through
March period of 2016 compared with the same period of
a year ago, and only 8 percent observed lower demand.
At 105, the index of funds availability ticked up from the
previous quarter; 13 percent of the survey respondents
reported their banks had more funds available to lend in
the first quarter of 2016 than a year earlier and 8 percent
reported their banks had less. The average loan-to-deposit
ratio for the District rose to 73.3 percent, reaching its highest
value since the second quarter of 2010. As of April 1, 2016,
average interest rates on operating loans (4.91 percent),
agricultural real estate loans (4.65 percent), and feeder
cattle loans (5.01 percent) were all down slightly from the
end of the previous quarter.

Looking forward
Agricultural land values were expected to continue falling,
as nearly two-thirds of the survey respondents predicted
farmland values to decrease in the second quarter of 2016
and none predicted farmland values to increase. Furthermore, farm real estate loan volumes were projected to be
down in the second quarter of 2016 compared with the
second quarter of 2015.
Survey respondents forecasted higher volumes of nonreal-estate farm loans for the April through June period of
2016 compared with the same period of 2015. Specifically,
they expected higher volumes for operating loans, dairy
loans, and loans guaranteed by the Farm Service Agency
of the USDA. In contrast, they expected lower volumes
for grain storage loans, farm machinery loans, and feeder
cattle loans. These patterns reflected the challenging circumstances facing farmers, as they attempt to weather a
downturn in agricultural prices by shoring up their cash
flows and holding back on capital spending.
David B. Oppedahl, senior 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, senior
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.
© 2016 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 https://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, 2011=100)	
	 Crops (index, 2011=100)	
		Corn ($ per bu.)	
		Hay ($ per ton)	
		Soybeans ($ per bu.)	
		Wheat ($ per bu.)	
	 Livestock and products (index, 2011=100)	
		 Barrows & gilts ($ per cwt.)	
		 Steers & heifers ($ per cwt.)	
		Milk ($ per cwt.)	
		Eggs ($ per doz.)	

March	
93	
0.0	
– 9	
–17
March	
83	
–1.2	
– 3	
–14
March	
3.57	
0.0	
– 6	
– 21
March	
138	
1.5	
– 12	
–19
March	
8.56	 0.6	
–13	
– 38
March	
4.40	
– 4.6	
–23	
– 35
March	
100	
1.0	
– 15	
–22
March	
50.50	
1.4	
0	
– 38
March	 137.00	 2.2	–15	 –9
March	
15.30	
–2.5	
– 8	
– 39
March	
0.97	
–10.4	
– 37	
–21

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

March	
March	

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.)	

March 1	
March 1	
March 1	
March	
March	
March	

238	 0.1	1	1
248	 0.2	1	3
– 
7,808	
N.A.	
1	
11		
1,531	 N.A.	15	54
1,372	 N.A.	20	30
2.10	
11.2	8	8
2.15	 7.2	 2	16
17.2	 8.9	2	3

March	 10,314	 –3.2	–15	–24		
March	
171	 31.3	 11	–17
March	
96	
– 53.8	
5	
–18
March	
63	
–3.6	
– 12	
– 20

Farm machinery (units) 						
	 Tractors, 40 HP or more	
March	
6,712	
N.A.	
–2	
–16
		 40 to 100 HP	
March	
4,810	
N.A.	
10	
2
		 100 HP or more	
March	
1,902	
N.A.	
–  3	
2
–  2
4
	 Combines	
March	
274	
N.A.	
– 17	
–  64
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