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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago

AgLetter

Number 1973	

FARMLAND VALUES AND CREDIT CONDITIONS

August 2016

CONFERENCE ANNOUNCEMENT
The Downturn in Agriculture:
Implications for the Midwest and the Future of Farming

Summary
For the second quarter of 2016, farmland values in the Seventh
Federal Reserve District were down 1 percent from a year
ago. Yet, “good” agricultural land values edged up 1 percent
from the first quarter to the second quarter of 2016. In the
second quarter of this year, prices for corn and soybeans
rallied again (similar to what they did a year ago), which
brightened outlooks in rural areas; but the prices for these
crops receded once again as the prospects of a record corn
harvest and a near-record soybean harvest grew stronger.
Only 1 percent of survey respondents expected farmland
values to rise during the third quarter of 2016, while 48 percent expected them to move down and 51 percent expected
them to be stable, according to a survey of 193 District
agricultural bankers.

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. At the
conference, experts from academia, industry, and policy
institutions will explore the agricultural downturn’s implications
for both the farm sector and the broader regional economy.
For more details and to register, go to https://www.chicagofed.org/
events/2016/ag-conference.

a year ago. Yet, relative to six months ago, the share of
loans with repayment problems was lower. Renewals
and extensions of non-real-estate farm loans were above
the level of the same quarter in the previous year, even as
demand for non-real-estate farm loans was also above its
level 12 months ago. Meanwhile, the availability of funds
for lending by agricultural banks was higher in the April
through June period of 2016 than in the same period of
2015, according to respondents. For the second quarter
of 2016, the District’s average loan-to-deposit ratio was
72.6 percent—6.4 percentage points below the average level
desired by the responding bankers. In addition, interest
rates on agricultural real estate and operating loans moved
lower once again.

The District’s agricultural credit conditions in the
second quarter of 2016 were still weaker than a year ago.
However, there were some signs of improvement from what
had been observed in the previous two quarters. During
the second quarter of 2016, repayment rates for non-realestate farm loans softened relative to a year ago, but not
by as much as during each of the prior two quarters. The
portion of the District’s agricultural loan portfolio reported
as having repayment problems was higher compared with

Percent change in dollar value of “good” farmland
Top:
April 1, 2016 to July 1, 2016
Bottom: July 1, 2015 to July 1, 2016
	
	
	
Illinois	
Indiana	
Iowa	
Michigan 	
Wisconsin	
Seventh District	

*

April 1, 2016	
July 1, 2015
to	to
July 1, 2016	
July 1, 2016
+ 2	
– 3	
0	
– 1	
+ 5	
+1	

XII

VI

+1
– 2
– 6
– 1
+7
– 1

I
+3
– 3

II
– 5
–10
– 3
III – 2

–1
– 7

VII
XIV

*

IV

*
+3
– 3 VIII

V
+ 2
– 4

*Insufficient response.

*

X

*

IX
– 1
+7

XV

XI
+3
– 1

XVI

*

*

1.	 Year-over-year changes in Seventh District farmland values,
	 by quarter
percent
30
25
20
15
10
5
0

−5

2003 ’04

’05

’06

’07

’08

’09

’10

’11

’12

’13

’14

’15

’16

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

Farmland values
District agricultural land values saw a year-over-year
decrease of 1 percent in the second quarter of 2016—which
was smaller than the one experienced in the first quarter.
That said, the string of quarters without a year-over-year
gain in District farmland values reached eight (two years)
(see chart 1). In contrast to the year-over-year decrease, “good”
farmland values for the District inched up 1 percent in the
second quarter of 2016 relative to the first quarter (see table
and map on front). Both the smaller year-over-year decrease
and the slight quarterly increase in farmland values at least
partially reflected a surge in corn and soybean prices during
the second quarter of this year. Although agricultural land
values fell from a year ago for the District overall, both
Illinois and Wisconsin saw year-over-year and quarterly
increases in farmland values. Moreover, Iowa had no
quarterly change in farmland values, as different parts of
the state experienced results that offset one another.
Despite June corn and soybean prices being the highest
for any month since January 2015, the U.S. Department of
Agriculture’s (USDA) June index of crop and livestock prices
received by farmers was down 10 percent from a year ago
and 17 percent from two years ago (see table on back). Lower
agricultural prices and an associated decline in farm earnings
over the past two years have been a drag on farmland values.
While the June bumps in corn and soybean prices provided
an opportunity for some farmers to boost their revenues,
they did not seem to alter the overall trend in farmland
values. In July of this year, the USDA estimated that
2016’s harvest of corn for grain would set a new record of
14.5 billion bushels and that the harvest of soybeans would
be 3.88 billion bushels, just shy of 2015’s record. Corn stocks
relative to usage would rise to levels not seen in just over
a decade, while soybean stocks relative to usage would
tighten slightly from a year ago. The USDA estimated price
intervals for the 2016–17 crop year of $3.10 to $3.70 per bushel
for corn and $8.75 to $10.25 per bushel for soybeans. When

calculated with the midpoints of these price ranges, the
projected revenues from the 2016 U.S. harvests relative to
those from the previous year’s harvests would be 0.4 percent
smaller for corn and 3.7 percent larger for soybeans. Combined, the projected revenues from corn and soybeans
harvested in 2016 would be 1.3 percent higher than in 2015.
While a small rise in crop revenues may come to fruition, revenues from livestock products seem likely to decline
again in 2016, dropping below the value generated from
crop production for the first time in three years, according
to USDA forecasts. The USDA’s June index of livestock
product prices received by farmers fell 18 percent from a year
ago and 23 percent from two years ago (see table on back).
In June, milk prices were down 13 percent from a year ago
and 36 percent from two years ago, while hog prices (for
barrows and gilts) were unchanged from a year ago and were
down 28 percent from two years ago. Cattle and egg prices
returned to earth in June, as they dropped 19 percent and
73 percent from a year ago, respectively. Given the declines
in both crop and livestock prices of recent years, it’s not too
surprising that District agricultural land values have softened.

Credit conditions
Even as agricultural credit conditions in the second quarter
of 2016 showed indications of improvement over the past six
months, they remained subpar relative to 12 months ago.
Repayment rates for non-real-estate farm loans during the
second quarter were weaker than a year ago. Still, at 48 (no
responding bankers noted higher rates of loan repayment
than a year ago and 52 percent noted lower rates), the index
of loan repayment rates was higher than in the previous two
quarters. Additionally, renewals and extensions of non-realestate farm loans over the April through June period of 2016
were higher than during the same period of a year ago, as
52 percent of survey respondents reported more of them
and only 1 percent reported fewer of them. Farm loans with
”major” or ”severe” repayment problems (4 percent and
almost 1 percent of the District loan portfolio, respectively)
2.	Percentage of the District farm loan portfolio with “major” or
	 “severe” repayment problems
percent

20

15

10

5

0

1984

’88

’92

’96

2000

’04

’08

’12

Source: Author’s calculations based on data from Federal Reserve Bank of Chicago
farmland value surveys (for the second quarter of each year).

’16

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	
	Apr–June	

156	
126	

105	
108	

32	
48	

73.3	
72.6	

4.91	
4.89	

5.01	
5.05	

4.65
4.57

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

were above the levels of a year ago and had not been
higher at the end of a second quarter since 2003 (see chart 2).
Notably, however, the portion of the District’s agricultural
loan portfolio with repayment problems was under the
level of six months ago. Moreover, Michigan and Wisconsin
had lower proportions of their farm loans experiencing repayment problems than the other District states.
Interest rates on agricultural real estate and operating
loans moved down in the second quarter of 2016, but the
rates for feeder cattle loans moved up. As of July 1, 2016,
the average interest rate on farm real estate loans had fallen
to 4.57 percent, matching its lowest value in the survey’s
history. The District average for interest rates on new farm
operating loans was also down a bit, to 4.89 percent. In contrast, the District average for interest rates on feeder cattle
loans edged up to 5.05 percent. At the same time, further
credit tightening was evident in the second quarter of 2016,
as 27 percent of the survey respondents reported that their
banks required larger amounts of collateral than a year ago
and none reported that their banks required smaller amounts.
Banks also had more funds available to lend in the second
quarter of 2016 than a year ago. With 16 percent of responding
bankers reporting their banks had more funds available to
lend and 8 percent reporting their banks had less, the index
of funds availability was 108 in the second quarter of 2016.
Demand for non-real-estate loans continued to run
higher than a year earlier. With 43 percent of survey respondents observing demand for non-real-estate loans above the
level of a year ago and 17 percent observing demand below
that of a year ago, the index of loan demand was 126 for the
second quarter of 2016. The District’s average loan-to-deposit
ratio for the second quarter of 2016 moved down to 72.6 percent. For the first six months of 2016, bankers reported lending
out an above-normal amount for the operation of farms,
but a below-normal amount for farm real estate. According
to responding bankers, in the January through June period
of 2016, there were somewhat higher than normal amounts
of operating loans and mortgages originated through the

Farm Credit System. Also, over the first six months of 2016,
merchants, dealers, and other input suppliers upped
their agricultural lending on the whole. Once again, life
insurance companies slightly reduced their agricultural
lending in the District, according to survey respondents.

Looking forward
Agricultural land values were anticipated to fall further in
the third quarter of 2016, as just 1 percent of responding
bankers projected farmland values to increase and 48 percent
projected them to decrease (51 percent projected stable farmland values). For the third quarter of 2016 relative to the same
quarter of 2015, survey respondents anticipated higher nonreal-estate loan volumes for agriculture (increases in the volumes of farm operating loans and loans guaranteed by the
Farm Service Agency of the USDA would more than offset
decreases in the volumes for dairy, feeder cattle, farm machinery, and grain storage construction loans). Farm real estate
lending was forecasted to be below the level of a year ago
in the July through September period of 2016 for the District.
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
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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 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.)	

June	
June	
June	
June	
June	
June	
June	
June	
June	
June	
June	

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

June	
June	

94	
87	
3.82	
134	
10.20	
4.20	
99	
61.00	
127.00	
14.80	
0.54	

–1.1	–10	–17
– 4.4	
– 1	
– 12
3.8	
6	
– 15
– 4.3	
–17	
– 30
4.5	
6	
–  29		
– 5.6	
– 23	
– 35
1.0	
– 18	
– 23
6.1	
0	
–  28
– 1.6	
– 19	
–  14
2.1	
– 13	
– 36
– 1.8	
– 73	
– 50

240	 0.2	1	1
248	– 
0.1	0	2

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.)*	

June 1	
4,722	
N.A.	
6	
23
June 1	
870	
N.A.	
39	
115
June 1	
981	 N.A.	30	66
June	
2.19	 8.0	10	 6
June	
2.01	 3.3	 1	16
June	 16.7	– 
4.0	2	3

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

June	
10,014	
2.4	
1	
– 9
June	
240	 27.6	44	27
June	
37	 9.0	 7	66
June	
85	 33.4	44	11

Farm machinery (units) 						
	 Tractors, 40 HP or more	
June	
7,989	
N.A.	
– 4	
– 6
		 40 to 100 HP	
June	
6,209	
N.A.	
3	
6
		 100 HP or more	
June	
1,780	
N.A.	
–23	
–32
	 Combines	
June	
376	
N.A.	
8	
– 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