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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1917

August 2002

AgLetter
FARMLAND VALUES AND CREDIT CONDITIONS

virtually unchanged from the last two times the survey asked
this question (the second and fourth quarters of 2001). Interest rates on farm-related loans reverted to their downward
trend, providing some additional relief to those with variable-rate loans or those able to refinance fixed rate loans.

Summary
The July survey of agricultural banks in the Seventh District,
conducted by the Chicago Fed, indicated that average farmland values increased just over 1 percent from the end of
March 2002 to the end of June. Data provided by more than
340 bankers showed that the year-over-year increase in the
value of “good” farmland was close to 6 percent, on average. As is typical, the District average obscured substantial
differences in the reported changes in farmland values across
the five states of the District (see map and table below).

Farmland values
Average district farmland values continued to increase
through the second quarter of 2002. However, the rate of
change remained varied across the region.
Respondents in Illinois, Michigan, and Wisconsin reported no change, on average, in “good” farmland prices
from the end of the first quarter to the end of the second
quarter. Mixed crop conditions in Illinois may have led to
no change in the state average. Sharply lower milk prices
this year, hurting dairy farmers, likely contributed to the
flat farmland values in Wisconsin. On a year-over-year basis,
Michigan and Wisconsin respondents indicated prices had
increased about 6 percent and 9 percent, respectively. Respondents in Illinois reported an increase of only 2 percent,
year-over-year. In comparison, the increase in farmland
values in Indiana and Iowa was broader in the second quarter of 2002, as opposed to the previous survey. A 2 percent
rise, on a quarterly basis, in farmland values was reported
for these states (see table). The year-over-year increase in

Credit conditions have remained fairly stable since the
last survey. The proportion of bankers reporting an increase
in collateral requirements on loans was somewhat lower than
at the end of the first quarter, and about the same as a year
ago. Respondents also observed that demand for agricultural
loans was down slightly, while the availability of funds edged
up from last quarter. Compared with the first quarter of 2002,
fewer banks reported lower rates of loan repayment, though
not as few as a year ago. A summary measure of the incidence
of farmer requests for loan renewals or extensions indicates
a decline in such requests from last quarter and a year ago.
Still, the proportion of farm loans that respondents viewed
as having “major” or “severe” repayment problems was

Percent change in dollar value of “good” farmland
XII
VI

Top:
April 1, 2002 to July 1, 2002
Bottom: July 1, 2001 to July 1, 2002

–1
+11

April 1, 2002
to
July 1, 2002
Illinois
Indiana
Iowa
Michigan
Wisconsin
Seventh District

July 1, 2001
to
July 1, 2002

0
+2
+2
0
0
+1

+2
+8
+7
+6
+9
+6

II

I
+4
+6

0
+2

+2
+9

0
+8

*Insufficient response.

VII
XIV

+1
+7

IV

+1
+4 VIII

V +5
+12
III

*

*

X

*

0
+2

+2
+6

XV

IX
XI
–1
+1

XVI
+2
+8

farmland values was 8 percent in Indiana and 7 percent in
Iowa. Positive crop conditions—notably in Iowa, the most favorable of the Seventh District states this year—probably
boosted farmland values. But, poor crop conditions in
Indiana, the least favorable of the Seventh District states,
didn’t dampen farmland values. Most likely, continued
demand from non-farm development was a key factor.
The impact on farmland values of relative agricultural
conditions in the District states was also reflected in bankers’ expectations for land prices in the third quarter of 2002.
The proportion of Seventh District bankers who expected
increases in farmland values was well above the proportion
who expected declines—in all states. In fact, 21 percent of
Seventh District bankers expected farmland values would
increase while only 4 percent thought they would decline,
with the remainder expecting stable farmland values. A primary factor in these expectations is probably the supporting
impact of the Farm Security and Rural Investment Act of 2002.

Credit conditions in the District
Credit conditions reported in the latest survey mirrored those
reported by the bankers during the past year, being favorable—for the most part.
Examining specific measures of credit conditions as of
July 1 relative to a year earlier, 22 percent of respondents
indicated they had increased loan collateral requirements,
a drop from the last survey. There was substantial variation
in this response, however, ranging from 33 percent in Illinois
to 11 percent in Indiana. The notably smaller proportion of
bankers requiring increased collateral in Illinois, Indiana,
and Iowa represented a change from three months earlier,
when 40 percent of Illinois and 20 percent of Indiana bankers
reported an increase in collateral requirements.
The respondents also provided their assessments, relative to a year ago, of the rate of loan repayment (see table
on page 3) and farmers’ requests for loan renewals or extensions. Based on the loan repayment index (see footnote 2 of
table on page 3), the repayment rate for the District overall
improved in the second quarter relative to the first quarter.
However, the index, which was at 71, also indicated that a
larger percentage of bankers reported a reduction in the rate
of loan repayment relative to a year ago than those who saw
an increase. The index measure for loan renewals and extensions told a similar story. A larger proportion of bankers
reported increases in requests for loan renewals or extensions
than those who reported a decrease. This index stood at 126
in the latest survey for the District overall, an improvement
from responses in the surveys for the first quarter and the
second quarter of 2001. There was again a wide dispersal
across states in both of these measures. Of particular note,
however, was the change recorded in the responses of Iowa
bankers, where both repayment rates (increased) and

renewal/extension rates (decreased) showed substantial
relative improvement from last quarter. This was likely in
response to higher corn and soybean prices coupled with
Iowa’s relatively good productivity prospects, leading to
improved balance sheets for Iowa farmers.
The bankers’ responses to a question regarding the volume of farm loans with repayment problems is another measure of financial stress in the industry. For the District on
average, respondents noted that 6 percent of their loan volume was in the “major” or “severe” problem categories.
This proportion remained quite stable over the past year.
Finally, interest rates resumed their decline on farmrelated loans. After peaking in the second quarter of 2000,
real estate loan rates declined 213 basis points to 7.08 percent, on average, by the end of the second quarter of 2002.
Over the same period, farm operating loan rates dropped
315 basis points to 7.28 percent. The relatively larger decline
in rates on operating loans resulted in a substantial reduction in the interest rate differential between operating and
real estate loans. This spread decreased from 122 basis points
in the second quarter of 2000 to only 20 basis points at the
end of the second quarter of 2002. With the interest rate spread
at 20 basis points or below in 2002, this year has seen the
smallest differential since 1983. The narrowing spread may
reflect a reduction in the risk premium, possibly due to the
stability provided by the Farm Security and Rural Investment Act of 2002, on what might be viewed as a farm operating loan portfolio without the same level of security as
real estate loans.

Looking forward
With indications of some weakening in loan demand evident
in the second quarter, the prospects for the third quarter are
of interest. When asked to report their near-term (third-quarter 2002 relative to third-quarter 2001) expectations for nonreal-estate loan demand, the bankers’ responses were pretty
balanced. Nineteen percent of the respondents expected

Quarterly District farm loan interest rates
percent
13

11

Farm
operating
9

Farm real
estate
7
1990

’92

’94

’96

’98

’00

’02

Credit conditions at Seventh District agricultural banks
Interest rates on farm loans
Loan
demand

Fund
availability

Loan
repayment rates

Average loan-todeposit ratio1

Operating
loans1

Feeder
cattle1

Real
estate1

(index)2

(index)2

(index)2

(percent)

(percent)

(percent)

(percent)

1999
Jan-Mar
Apr-June
July-Sept
Oct-Dec

120
115
109
107

119
107
94
104

40
50
63
72

69.9
71.7
72.7
72.7

9.03
9.11
9.32
9.44

9.01
9.08
9.28
9.41

8.06
8.18
8.42
8.59

2000
Jan-Mar
Apr-June
July-Sept
Oct-Dec.

121
109
106
105

95
76
82
92

77
72
77
81

72.9
75.5
76.9
74.9

9.78
10.43
10.17
9.92

9.72
10.14
10.14
9.90

8.89
9.21
9.18
8.90

2001
Jan-Mar
Apr-June
July-Sept
Oct-Dec

118
106
91
101

101
109
127
129

67
73
86
75

75.0
75.1
74.9
72.8

9.16
8.60
8.01
7.41

9.17
8.58
8.07
7.51

8.23
7.91
7.47
7.21

2002
Jan-Mar
Apr-June

108
105

118
120

66
71

72.7
75.1

7.33
7.28

7.48
7.35

7.22
7.08

1

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 percent of bankers that responded “lower” from the percent that responded “higher” and adding 100.
2

an increase in loan volume and 18 percent expected a decline, giving a loan demand expectation index of 101.
Most of the strength in non-real-estate lending was
expected to occur in the operating loan category. Other categories of lending, such as feeder cattle loans, dairy loans,
farm machinery loans, and loans for the construction of
grain storage facilities were expected to be fairly weak in
the third quarter—continuing a prolonged pattern. Bankers expect some deterioration in lending in most of these
categories compared with last quarter and a year ago, but
the deterioration may slow for farm machinery lending.
Lenders’ reliance on loan guarantees is another indicator of credit conditions. Bankers reported they expect to
rely more heavily on the USDA’s Farm Service Agency (FSA)
farm loan guarantees during the next three months (i.e.,
July-September) than they did during the same period a
year ago. Their responses indicated a higher level of reliance on FSA guarantees than this time last year. As reported
last quarter, 37 percent of the respondents indicated they
would rely more heavily on FSA guarantees. The proportion of bankers expecting to reduce their utilization of the
guarantees remained about 8 percent.
Lastly, District bankers expect a weakening in demand
for farm real estate loans, relative to last quarter. Twelve percent of the respondents expect to see an increase in farm real
estate loan demand in the third quarter of 2002, while 16 percent expect a decline. There has been a substantial increase
in farm-related lending from non-bank sources in District
states, though the trend has slowed since last year as banks

seem able to generate more loans. Farm Credit System (FCS)
lending for farm operating loans and farm mortgages was
higher, up 38 percent and 49 percent, respectively, according
to respondents—slightly lower than reported increases a
year ago. Merchants, dealers, and other input suppliers continue to increase their agricultural lending, as 47 percent
of respondents reported. On the other hand, life insurance
companies continue to fade as agricultural lenders, with only
6 percent of respondents seeing higher loan volumes for
life insurance companies, but 18 percent reporting lower
loan volumes.
David B. Oppedahl and Jack L. Hervey

AgLetter (ISSN 1080-8639) is published quarterly by the Research
Department of the Federal Reserve Bank of Chicago. It is prepared
by Jack L. Hervey, senior economist, and members of the Bank’s
Research Department, and is distributed free of charge by the Bank’s
Public Information Center. 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.
To subscribe, please write or telephone:
Public Information Center
Federal Reserve Bank of Chicago
P.O. Box 834
Chicago, IL 60690-0834
Tel. no. 312-322-5111
Fax no. 312-322-5515
AgLetter is also available on the World Wide Web at
http://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)
Barrows and gilts ($ per cwt.)
Steers and heifers ($ per cwt.)
Milk ($ per cwt.)
Eggs (¢ per doz.)

August
August
August
August
August
August
August
August
August
August
August

101
116
2.48
93.70
5.65
3.60
87
39.40
66.30
11.2
62.2

1.0
4.5
16.4
0.1
5.6
12.1
–2.2
–2.0
–0.5
0.0
8.0

–8
6
31
–4
16
31
–22
–23
–10
–32
10

–6
21
63
16
27
50
–9
–11
–3
–10
–6

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

August
August

181
176

0.3
0.0

2
1

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.)

June 1
June 1
June 1
August
August
August

3,594
684
772
2.47
1.64
12.2

N.A.
N.A.
N.A.
1.8
5.1
–0.8

–8
–3
–12
2
2
4

0
–12
–19
1
0
2

Receipts from farm marketings (mil. dol.)
Crops**
Livestock
Government payments

June
June
June
June

13,722
6,551
7,171
N.A.

–1.5
2.8
–5.0
N.A.

–8
1
–15
N.A.

–2
9
–10
N.A

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

July
July
July
June

4,105
167
56
65

0.7
0.2
28.9
5.7

4
–9
68
5

7
9
11
–30

Farm machinery sales (units)
Tractors, over 40 HP
40 to 100 HP
100 HP or more
Combines

August
August
August
August

5,505
4,787
718
421

–16.1
–14.9
–23.0
26.0

5
9
–13
–36

1
9
–30
–12

N.A. Not applicable
*20 selected states.
**Includes net CCC loans.

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