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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1885

February 1997

AgLetter
LAND VALUES AND CREDIT CONDITIONS

rise for that state was over 4 percent, capping a 15 percent
gain for all of 1996. Among the other four District states,
however, the fourth-quarter trend in farmland values
ranged from no change (Illinois and Iowa) to up only a little
over 1 percent (Michigan). The flat fourth-quarter performance indicated for both Illinois and Iowa encompassed
some areas that reported declines while other areas within
those states noted gains. The factors behind the divergent
trends are not clear, but may possibly reflect a combination of such things as an unexpectedly good—or bad—
harvest, differing assessments of the land market in light
of the sharp decline in grain prices last fall, or differences
in the supply of farms available for sale and/or the interests of buyers seeking to acquire farmland.

Our latest survey of agricultural banks in the Seventh Federal Reserve District found that the rise in farmland values
slowed in the fourth quarter while credit conditions were
little changed. The nearly 400 responding banks indicated
that fourth-quarter farmland trends varied considerably
and, on average, rose less than 1 percent. The latest quarterly rise was less than a third of the gain reported earlier
for the third quarter. Despite the slowing, strong gains in
the earlier quarters boosted the rise in District farmland
values for all of last year to 10 percent, double the rise of
the year before. Credit conditions were little changed,
with the latest measures of farm loan demand, fund availability and farm loan interest rates holding close to previous
levels. However, the measure of farm loan repayment
rates declined, reversing the pattern of year-over-year
gains noted since the fall of 1995.

The evidence of a slower rise in farmland values is
also suggested by the bankers’ expectations for trends
during the first quarter of this year. Less than a third of
the bankers projected an uptrend in farmland values for
this winter. Another 61 percent felt that land values
would be steady in the first quarter. The share expecting
an uptrend was only about half the share that held similar views in the four preceding quarterly surveys.
Among individual District states, the share expecting a

The bankers responses to the question about the current value of “good” farmland—defined as land with
above-average productivity within the bank’s market
area—indicate that fourth-quarter trends varied considerably. Bankers from all District portions of Indiana reported continued strong gains. The average fourth-quarter

Percent change in dollar value of “good” farmland
XII

Top:
October 1, 1996 to January 1, 1997
Bottom: January 1, 1996 to January 1, 1997
October 1, 1996
to
January 1, 1997
Illinois
Indiana
Iowa
Michigan
Wisconsin
Seventh District

0
+4
0
+1
+1
+1

January 1, 1996
to
January 1, 1997
+8
+15
+11
+7
+6
+10

VI
+1
+4
II

I
+4
+15

+1
+14

–1
+12
V
III

–5
+5

*
VII

+3
+9 VIII

–1
+7

XIV

+1
+7

IV

*

X

*

+2
+12

XI
–2
+6

XVI
XVII

*Insufficient response.

+4
+14

XV

IX

+4
+16

*

first quarter uptrend in land values ranged widely. The
proportion of bankers from Illinois, Iowa, Michigan, and
Wisconsin expecting an uptrend were tightly clustered
around 30 percent, while the share in Indiana, at 55 percent,
was substantially higher.
The underlying credit conditions portrayed by the
responding bankers show a continuation of recent trends
for most measures. Nevertheless, the views varied
widely across the District states. The overall measure of
farm loan demand for the fourth quarter was unchanged
at 122 (see table on page 3). That reading represents a
composite of the 36 percent of the bankers that noted
loan demand was up from the same year-ago period,
less the 14 percent that noted a decline. The remaining
bankers felt fourth-quarter farm loan demand was unchanged from a year ago. The indicated strength in farm
loan demand was centered in Illinois, Indiana, and especially Iowa. Conversely, the share of bankers in Michigan
and Wisconsin that noted a decline in fourth-quarter
farm loan demand slightly exceeded the share noting an
increase from a year ago.
The measure of the amount of funds available for
making nonreal estate farm loans edged slightly lower.
Nevertheless, it shows that the share of banks (19 percent)
noting year-over-year improvement in fund availability
still exceeds the share (9 percent) noting a decline. This
pattern held for all five District states, although the margin, or net share, noting an increase was considerably
smaller in Indiana and Michigan. Loan-to-deposit ratios
represent a related measure that helps gauge the overall
lending capacity at banks. The average loan-to-deposit
ratio among the surveyed banks retreated slightly during
the fourth quarter, but still held well above the year-ago
level. Except for Michigan, however, actual loan-to-deposit
ratios still average below the bankers’ desired ratios.
The farm loan interest rates charged by the responding bankers held steady over the fourth quarter. The simple average of the reported typical rates charged on farm
operating loans was 9.64 percent, virtually unchanged
from three months earlier but 25 basis points (one-fourth
of one percentage point) lower than a year ago. Among
the five District states, the range in the average operating
loan rates stretched from a low of 9.34 percent (Illinois)
to a high of 10.05 percent (Michigan). The overall average rate reported for farm real estate mortgages was 8.74
percent, with a range in state averages stretching from
8.54 percent (Illinois) to 9.15 percent (Michigan).
The special questions in the most recent survey
focused on farm real estate transfers and the financing
practices associated with those transfers. The bankers

indicated that a sizable share of the farm real estate
transfers are made without the use of debt financing.
Among all respondents, the reported share of 1996 transfers that used debt financing averaged 71 percent. The
average shares among District states clustered in a narrow range, from a low of 66 percent in Illinois to a high
of 75 percent in Indiana. The typical debt-to-collateral
value ratio on all debt-financed farm real estate transfers
averaged 68 percent, ranging from 65 percent (Illinois
and Iowa) to 73 percent (Michigan and Wisconsin)
among individual District states.
The typical loan-to-collateral value ratio associated
with the farm mortgage loans extended by the responding
banks in 1996 was very similar to the average ratio noted
above for all lenders. Moreover, there was very little difference between District states in the typical ratios reported
for farm mortgages made by the responding banks.
However, the typical maturities on the farm mortgages
made by the banks varied widely. Three-fourths of the
responding banks mentioned one of four time periods as
the typical maturity on their farm mortgage loans. Some
27 percent of the banks indicated that five years was the
typical maturity of the farm real estate loans made by
their bank in 1996. Another 23 percent indicated a typical maturity of 20 years. The third-most frequently cited
(by 16 percent of the banks) maturity was three years,
followed by another 10 percent of the banks that mentioned 15 years. This overall distribution of the most
common maturities masks some interesting differences
among District states. The typical maturities of farm real
estate loans made by banks in Illinois, Michigan, and
Wisconsin tend to be short. Among those three states,
typical maturities of five years or less were noted by
more than two-thirds of the banks (81 percent of the banks
in Wisconsin). Among Iowa banks, about half noted a
typical maturity of five years or less while the vast bulk of
the remainder reported typical maturities of 12 to 25 years.
And among Indiana’s bankers, only 18 percent reported
typical maturities of five years or less while nearly 70 percent reported typical maturities of either 15 or 20 years.
The reasons for the wide geographical differences
in typical maturities are not clear. It may be partially tied
to other loan terms that might differ, such as fixed versus
variable interest rates. It could also reflect different practices among banks in funding their farm mortgages. It
may also be due to differing practices with respect to
holding those loans in portfolio or selling the mortgages
to someone else. For example, banks that make farm
loans with long maturities may be more inclined to sell
those loans to life insurance companies, Farmer Mac, or

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

1992
Jan-Mar
Apr-June
July-Sept
Oct-Dec
1993
Jan-Mar
Apr-June
July-Sept
Oct-Dec
1994
Jan-Mar
Apr-June
July-Sept
Oct-Dec
1995
Jan-Mar
Apr-June
July-Sept
Oct-Dec
1996
Jan-Mar
Apr-June
July-Sept
Oct-Dec

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)

129
123
111
107

128
123
123
127

77
79
90
93

57.3
58.1
59.3
58.7

9.77
9.57
9.18
9.12

9.80
9.56
9.16
9.13

9.19
8.99
8.63
8.59

108
103
110
125

131
129
122
126

102
95
90
95

58.0
59.2
59.2
59.7

8.85
8.77
8.63
8.50

8.83
8.74
8.59
8.50

8.29
8.16
7.99
7.88

136
139
132
112

121
107
96
102

94
90
94
111

59.9
62.5
64.5
63.8

8.52
8.98
9.38
9.99

8.48
8.95
9.30
9.93

7.97
8.48
8.86
9.48

122
124
123
111

96
104
104
123

98
93
98
119

64.8
66.1
67.3
64.9

10.33
10.24
10.16
9.89

10.26
10.20
10.14
9.88

9.68
9.64
9.27
8.93

125
116
122
122

125
114
113
110

117
108
112
94

65.0
65.8
68.2
67.6

9.62
9.69
9.70
9.64

9.63
9.69
9.68
9.61

8.66
8.81
8.80
8.73

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

other lenders. However, the latter argument is partially
countered by the fact that over half of all farm loans held
by banks in Indiana (where farm mortgages tend to have
long maturities) are secured by real estate, well above
the 42 percent share among banks in other District states
and the 37 percent applicable for banks nationwide.
While the typical maturity of the farm real estate
loans made by the surveyed banks differed considerably,
the amortization (repayment) schedules on those loans
were much more uniform. The two most frequently cited amortization periods were 20 years (by 59 percent of
the banks) and 15 years (by 21 percent of the banks).
The same two amortization periods in the same rank
ordering were noted by a large majority (75 percent or
more) of the banks in all five District states.
In looking ahead, it appears that the bankers see
considerable strength within the farm sector. But that
optimism is all concentrated in Illinois, Indiana, and
Iowa. Reflecting the divergent views, about a third of
the bankers in Illinois, Indiana, and Iowa are expecting
capital expenditures for farm real estate purchases and
improvements to increase this year while only 14 percent
expect a decline. In Michigan and Wisconsin, the views
are decidedly reversed, with only a tenth expecting an

increase while over 40 percent expect a decline. Similarly,
nearly two-thirds of the bankers from Illinois, Indiana,
and Iowa expect increased expenditures for farm machinery and equipment while less than a tenth project a decline.
The net margin of the bankers from Michigan projecting
an increase was much smaller, while the responses from
Wisconsin point toward a decline in farm machinery and
equipment expenditures.
Gary L. Benjamin
AgLetter (ISSN 1080-8639) is published monthly by the Research
Department of the Federal Reserve Bank of Chicago. It is prepared by
Gary L. Benjamin, economic adviser and vice president, Mike A. Singer,
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
Ag Letter is also available on the World Wide Web at
http://www.frbchi.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.)

January
January
January
January
January
January
January
January
January
January
January

108
115
2.63
99.70
7.16
3.97
99
53.90
65.80
13.60
75.8

–1.8
–0.9
0.0
4.0
3.6
–2.2
–3.9
–3.9
0.5
–3.5
–13.6

0
–5
–15
25
6
–18
5
25
5
–3
–5

10
12
20
19
31
8
6
43
–8
8
22

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

January
January

159
157

0.3
0.1

3
4

6
6

December 1
December 1
December 1
December
December
January

6,906
1,823
1,219
1.95
1.43
11.1

N.A.
N.A.
N.A.
–0.3
–0.1
0.4

13
–1
–9
–2
–5
0

–15
–13
–18
–3
–13
0

August
August
August
August

16,254
8,295
7,600
359

–5.8
–3.8
–1.7
–59.8

9
6
7
1,336

16
35
–2
379

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

November
November
November
October

5,895
242
152
101

12.7
66.9
59.2
–21.8

13
20
78
–16

27
25
94
–4

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

January
January
January
January

4,442
2,470
1,972
442

–12.8
–21.5
1.2
–64.9

–10
–8
–12
5

0
–4
5
5

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

N.A. Not applicable
*20 selected states.
**Includes net CCC loans.
AgLetter is printed on recycled paper
using soy-based inks

Federal Reserve Bank of Chicago
Public Information Center
P.O. Box 834
Chicago, Illinois 60690-0834
312-322-5111

AgLetter

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