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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago

AgLetter

Number 1977

FARMLAND VALUES AND CREDIT CONDITIONS

August 2017

CONFERENCE ANNOUNCEMENT
Midwest Agriculture’s Ties to the Global Economy

Summary
Farmland values for the Seventh Federal Reserve District
increased 1 percent from a year ago during the second quarter
of 2017. This was the first year-over-year gain in three years.
Additionally, “good” agricultural land values in the District
moved up 1 percent from the first quarter to the second
quarter of 2017, according to a survey of 186 agricultural
bankers. District farmland values seemed to stabilize in the
first half of 2017, despite lower prices for corn and soybeans
relative to a year ago. Moreover, 76 percent of survey
respondents expected agricultural land values to be stable
during the third quarter of 2017, while 2 percent expected
them to increase and 22 percent expected them to decrease.

The Federal Reserve Bank of Chicago will hold a conference
on November 28, 2017, to bring together those interested in
issues surrounding agricultural trade and the global economy.
At the conference, experts from academia, industry, and policy
institutions will discuss trends in agricultural exports and their
impact on the Midwest, as well as the role of global demand for
the region’s agricultural products. For details and to register,
go to https://www.chicagofed.org/events/2017/ag-conference.

again from a year earlier—as was the availability of funds
for lending by agricultural banks. For the second quarter
of 2017, the District’s average loan-to-deposit ratio was
74.4 percent—5.5 percentage points below the average
level desired by the responding bankers. On average, real
interest rates for agricultural real estate, feeder cattle, and
operating loans shifted up in the second quarter of 2017.

In the second quarter of 2017, agricultural credit
conditions for the District slowed their downward trend.
Repayment rates for non-real-estate farm loans weakened
relative to a year earlier in the second quarter of 2017 (but
by the least since the fourth quarter of 2014). The proportion of the District’s agricultural loan portfolio reported
as having repayment problems was nearly the same as a
year ago. Renewals and extensions of non-real-estate farm
loans continued their trend of increasing from a year ago,
according to respondents. For the April through June period
of 2017, demand for non-real-estate farm loans was up

Farmland values
For the second quarter of 2017, there was a year-over-year
increase of 1 percent in District agricultural land values—
which was the first such upward movement since mid-2014
(see chart 1 on next page). Although the District’s overall
farmland values were up from a year ago, those of both
Illinois and Indiana experienced year-over-year decreases.

Percent change in dollar value of “good” farmland
Top:
April 1, 2017 to July 1, 2017
Bottom: July 1, 2016 to July 1, 2017

Illinois
Indiana
Iowa
Michigan
Wisconsin
Seventh District

April 1, 2017
to
July 1, 2017

July 1, 2016
to
July 1, 2017

0
+2
+2
*
+1
+1

–3
–1
+3
*
+1
+1

Note: New area boundaries reflect recent survey response patterns.

V
+1
+1
I
–1
–2

II
+5
+7

MI

*

+1 IV
+3
III
+2
0

VI
+3
–1

VIII

*

VII
–2
–4
*Insufficient response.

IN

+2
–1

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

2004 ’05

’06

’07

’08

’09

’10

’11

’12

’13

’14

’15

’16

’17

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

Moreover, the year-over-year changes in farmland values
varied across different areas within states, particularly in
Iowa (see map and table on front). District farmland values
moved up 1 percent in the second quarter of 2017 relative
to the first quarter. Farmland values for each District state
were either up or flat in the second quarter of 2017 compared with the first quarter. Agricultural land values moved
higher even without the benefit of a surge in corn and
soybean prices, as seen in the second quarter of 2016.
Substantial concerns developed about this year’s
corn and soybean yields—specifically, that these yields
would fall below their long-run trends. Several factors
contributed to this concern: late planting, replanting, and
excess precipitation in much of the District this spring,
followed by a drought expanding into the District from
the west. That said, a rally in corn and soybean prices failed
to materialize, given the large stocks in storage (from
record harvests in 2016). Using trend yields, the U.S.
Department of Agriculture (USDA) estimated in July
that 2017’s harvest of corn for grain would be 14.26 billion
bushels (second only to 2016’s record) and this year’s
harvest of soybeans would be 4.26 billion bushels (a bit
smaller than last year’s record). Corn stocks relative to
usage for 2017–18 would remain near the decade-high
level reached in 2016–17, while soybean stocks relative
to usage would be the highest in a decade. The USDA
estimated price intervals for the 2017–18 crop year to be
$2.90 to $3.70 per bushel for corn and $8.40 to $10.40 per
bushel for soybeans. When calculated with the midpoints
of these price ranges, the projected revenues from the 2017
U.S. corn and soybean harvests are down 7.3 percent and
2.1 percent from a year ago, respectively. Even though the
USDA index of June crop prices received by farmers was
down only 1 percent from a year ago and 3 percent from
two years ago (see final table), pressures on the earnings
of corn and soybean farms have reemerged after betterthan-expected returns from 2016’s crops.

In contrast, some relief for livestock producers seemed
to have arrived in the form of rising prices for their goods.
The USDA’s June index of prices received for livestock
products was up 10 percent from a year ago, although it
was still down 11 percent from two years ago (see final
table). In June, prices received by farmers for important
District products were above the levels from one year earlier:
up 17 percent for milk, 17 percent for eggs, 5 percent for
cattle (steers and heifers), and 3 percent for hogs (barrows
and gilts). Given that Iowa and Wisconsin have larger
shares of livestock production than the other District
states, higher livestock revenues may have helped buoy
agricultural land values in those two states.

Credit conditions
While agricultural credit conditions in the second quarter
of 2017 again deteriorated relative to 12 months ago, they
seemed to do so more slowly than in recent quarters. Repayment rates for non-real-estate farm loans relative to a
year ago were still down during the second quarter of
2017, but less so than in the first quarter. At 68 (2 percent
of responding bankers noted higher rates of loan repayment
than a year ago and 34 percent noted lower rates), the index
of loan repayment rates was last higher in the fourth quarter
of 2014. The percentages of farm loans with major or severe
repayment problems (3.5 percent and almost 1 percent of
the District loan portfolio, respectively) were similar to the
levels of a year ago (see chart 2). In addition, renewals and
extensions of non-real-estate farm loans over the April
through June period of 2017 were higher than during the
same period a year ago, as 37 percent of survey respondents
reported more of them and 2 percent reported fewer of them.
Nominal interest rates on agricultural real estate and
operating loans ticked up in the second quarter of 2017,
but the nominal rates for feeder cattle loans dipped. As
of July 1, 2017, District average interest rates on new farm
operating loans and real estate loans had risen to 5.20 percent
and 4.86 percent, respectively, while the average interest
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-toOperating
Feeder
Real
		
demand
availability
repayment rates
deposit ratio
loansa
cattlea
estatea
		

(index)b

(index)b

2016
Jan–Mar
Apr–June
July–Sept
Oct–Dec

156
126
132
114

105
108
103
105

32
48
48
65

73.3
72.6
75.3
75.0

4.91
4.89
4.87
5.03

5.01
5.05
4.95
5.10

4.65
4.57
4.57
4.71

2017
Jan–Mar
Apr–June

129
119

101
104

57
68

74.4
74.4

5.13
5.20

5.27
5.25

4.80
4.86

(index)b

(percent)

(percent)

(percent)

(percent)

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

rate on feeder cattle loans edged down to 5.25 percent. Yet,
after being adjusted for inflation (which eased) with the
Personal Consumption Expenditures Price Index, all these
interest rates reached their highest levels since the third
quarter of 2016: Average real interest rates rose 52 basis points
for farm operating loans, 51 basis points for farm real estate
loans, and 43 basis points for feeder cattle loans. Additional
credit tightening was evident in the second quarter of 2017,
as 22 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. District banks also had somewhat more funds
available to lend in the second quarter of 2017 than a year
ago. With 12 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 104 in the second quarter of 2017.
Demand for non-real-estate loans compared with a
year earlier remained elevated. With 34 percent of survey
respondents noting demand for non-real-estate loans above
the level of a year ago and 15 percent noting demand below
that of a year ago, the index of loan demand moved down
to 119 for the second quarter of 2017. The District’s average
loan-to-deposit ratio for the second quarter of 2017 stood
at 74.4 percent—5.5 percentage points below the average
level desired by survey respondents. Over the first half of
2017, District banks issued an amount of farm operating
loans that was higher than historically normal, but an
amount of agricultural real estate loans that was lower
than normal, according to responding bankers. In the first
six months of 2017, merchants, dealers, and other input
suppliers noticeably boosted agricultural lending as well.
According to survey respondents, during the January
through June period of 2017, lenders within the Farm
Credit System also issued an above-normal amount of
operating loans and mortgages. Meanwhile, life insurance
companies reportedly issued an amount of agricultural
loans in the District that was slightly below normal.

Looking forward
District farmland values were expected to stay at their
current levels or decline a bit in the third quarter of 2017;
76 percent of responding bankers projected agricultural land
values to be stable, 22 percent projected them to decrease,
and only 2 percent projected them to increase. For the third
quarter of 2017 relative to the same quarter of 2016, survey
respondents anticipated farm loan volumes to decrease for
real estate lending and to increase for non-real-estate lending.
An Iowa banker wrote: “Lower prices and dry weather
in our area have farmers talking about meeting costs. Federal
crop insurance will probably come into play.” With the
drought spreading, insurance payments may make up some
portion of 2017’s income for a sizable number of District
crop farms. Responding bankers affirmed the key role of
federal crop insurance; 89 percent expressed that if there
were lower participation in crop insurance, agricultural
lending in their respective areas would be negatively
affected (3 percent doubted this outcome and the rest
were uncertain).
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.
© 2017 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		
period
Value

Prior
period

Year
ago

Two years
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

98
87
3.43
143
9.10
4.37
107
62.70
133.00
17.30
0.63

–  0.1
0.3
–  0.6
– 2.1
– 2.0
7.9
0.6
16.5
– 3.6
3.6
2.6

5
–1
–10
7
– 11
4
10
3
5
17
17

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

June
June

244
250

0.0
– 0.1

2
1

3
1

–7
–3
–  4
– 12
– 5		
– 19
– 11
3
–  15
2
– 68

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
June
June
June

5,225
963
1,184
2.28
2.05
16.9

N.A.
N.A.
N.A.
5.4
– 2.1
– 5.1

11
10
21
4
2
1

17
54
57
14
3
3

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

June
June
June
June

10,422
194
66
111

– 2.3
– 3.8
23.9
– 3.0

4
– 19
79
31

5
16
92
87

Farm machinery (units) 						
Tractors, 40 HP or more
June
7,337
9
–5
– 12
		 40 to 100 HP
June
5,842
11
–1
–3
		 100 HP or more
June
1,495
2
–17
–35
Combines
June
445
109
19
28
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.