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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1927

February 2005

AgLetter
FARMLAND VALUES AND CREDIT CONDITIONS

in 2005, given already lower agricultural prices, increased
input costs, and recent interest rate movements.

Summary
An unusual array of agricultural events in 2004 culminated
in the largest annual increase, 12 percent, in the value of
“good” agricultural land for the Seventh Federal Reserve
District during the last 15 years. The quarterly gain in farmland values for the District was 3 percent in the fourth
quarter of 2004, according to surveys returned by 278 agricultural bankers. As of January 1, 2005, half the respondents
expected farmland values to continue rising over the next
three months and half expected them to remain stable.

Farmland values
The 12 percent increase in 2004 District farmland values
tied for the largest since 1979, only matched in 1988 (see
chart 1). Nominal farmland values have risen 180 percent
from the low established in 1986 for the District. The states
of Indiana and Wisconsin showed the largest gains at 14
percent (see table and map below), their largest since 1979.
Illinois land values increased 13 percent, its biggest increase
since 1988. Iowa and Michigan had the smallest increases
at 11 percent, their best results since the late 1990s.

District bankers reported improved agricultural credit
conditions, continuing a trend that started a year ago. Indexes of loan demand, loan repayment rates, and fund availability rose for every quarter of 2004, the first string of four
consecutive quarterly increases since 1995–96. Moreover,
loan renewals and extensions in the fourth quarter once
again were lower than a year ago. Fewer banks required
increased collateral than for October to December of 2003.
Interest rates on agricultural loans continued to move up,
adding more than 50 basis points in 2004. Loan-to-deposit
ratios dipped slightly from the third quarter to almost 5 percentage points below the average ratio considered most
desirable by the bankers. However, the 2004 improvements
in agricultural credit conditions are unlikely to continue

The value of “good” agricultural land rose 3 percent, on
average, for the District in the fourth quarter of 2004. Indiana
exceeded the District average at 5 percent, while Michigan
trailed at 1 percent. The surge in District farmland values in
2004 started with a 5 percent increase in the first quarter before ending with two quarters of 3 percent growth. There were
several unusual factors that contributed to these increases.
First, 2004 gains in farmland values reflected record
net farm income for the U.S., as both crop and livestock producers saw higher margins. At $73.7 billion, net farm income
increased 25 percent in 2004 over the previous record set in
2003. For extended periods of the year, prices for the District’s
major agricultural products were well above the seasonal

Percent change in dollar value of “good” farmland
XII

Top:
October 1, 2004 to January 1, 2005
Bottom: January 1, 2004 to January 1, 2005
October 1, 2004
to
January 1, 2005
Illinois
Indiana
Iowa
Michigan
Wisconsin
Seventh District

+3
+5
+3
+1
+3
+3

January 1, 2004
to
January 1, 2005
+13
+14
+11
+11
+14
+12

VI
+2
+16
II

I
+2
+10

+2
+12

+2
+12
V
+1
III +10

VII
+6
+12

IV

XIV
*

+1
X
+12 VIII

+5
+10

*Insufficient response.

*

*

+3
+7

+2
+10

XV

IX
XI
+5
+17

XVI

+7
+16

reduced the real returns from owning farmland. Still, bankers
expressed concerns about the impact of elevated farmland values on working farmers and credit conditions going forward.

1. Annual percentage change in Seventh District
farmland values
percent
30

20

10
0

-10

-20
1965

’70

’75

’80

’85

’90

’95

’00

highs of the previous five years. By fall, when corn and soybean prices had fallen significantly, farmers had already
forward-contracted a substantial portion of the harvest.
Moreover, the corn and soybean harvests set records
too. Final USDA data for the 2004 harvest show that District corn production rose 15 percent from 2003 levels to
5.87 billion bushels, and soybean production was up 38
percent to 1.41 billion bushels. Record corn yields were
experienced in all District states except Wisconsin. Illinois
and Indiana had record soybean yields as well.
Ethanol was another important factor that boosted
farmers’ income. Corn prices have been supported by increased usage of corn in ethanol production ($0.20–$0.40
per bushel according to a USDA study). In the 2004/2005
marketing year, the USDA estimated that 1.425 billion bushels of corn will be converted into ethanol for fuel, a 13 percent increase from the prior year. The District produced
over half of the total U.S. ethanol output in 2004. Profits
from higher ethanol output and prices partly went to farmer
owners of ethanol plants (38 percent of U.S. production,
data from the Renewable Fuels Association).
In addition to record net farm income, the demand for
farmland has remained strong. Bankers commented on the
desire of farmers to expand their operations by buying land.
But they must often compete with outside investors and
other farmers displaced by development around metropolitan areas. In particular, tax-deferred exchanges seem to have
spurred farmland values higher. Additionally, recreational
usage of land has pulled up land values in parts of the District.
For the first quarter of 2005, 50 percent of respondents
expected farmland values to keep rising. The other half expected farmland values to remain about the same during the
next three months. Even so, there were comments that land
values may have peaked or were too high. Yet, when adjusted
for inflation, farmland values remained 40 percent below their
1979 peak (see chart 2). Real farmland values have risen more
than 160 percent from their low in 1986, so inflation has

Credit conditions
District credit conditions improved again in the fourth quarter of 2004, extending the string of positive results triggered
a year ago by higher agricultural prices. The index of nonreal-estate farm loan repayment rates jumped again to 127.
With 35 percent of the bankers reporting higher rates of loan
repayment and 58 percent reporting stable rates, less than
10 percent expected lower rates of repayments. Indiana, just
ahead of Illinois and Iowa, showed the largest percentage
of banks with higher rates of loan repayment versus a year
ago. In addition, less than 4 percent of the volume of the
banks’ agricultural loan portfolios was classified as having
major or severe repayment problems, about the same as
six months ago and a slight decrease from a year ago.
Also, there has been a downshift in the rate of renewals
and extensions of loans relative to the previous year. With
30 percent of bankers indicating lower renewals and extensions than a year ago and less than 10 percent indicating
higher levels, renewals and extensions were down more than
in recent quarters. In contrast with the fourth quarter a year
ago when only Iowa bankers reported lower levels of loan
renewals and extensions, all District states experienced lower
levels in 2004.
Demand for non-real-estate loans was up again in
the fourth quarter from a year ago, as the index of loan
demand remained at 109. Almost 10 percent more bankers
reported an increase in the demand for non-real-estate loans
as reported a decrease, while half indicated the same level
of demand. Wisconsin was the only state with lower demand for non-real-estate loans last quarter, though Illinois
didn’t show a gain. Indiana, Iowa, and Michigan demonstrated evidence of higher non-real-estate loan demand.
Fund availability increased across the District during
October, November, and December compared with a year
2. Indexes of District farmland values
1981=100
150

120

Nominal
farmland values

90

60

Farmland
values adjusted
by CPI-U

30

0
1970 ’73

’76

’79

’82

’85

’88

’91

’94

’97

’00

’03

Note: Derived from Federal Reserve Bank of Chicago farmland value surveys
and BLS Consumer Price Index series (annual average).

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)

2002
Jan–Mar
Apr–June
July–Sept
Oct–Dec

108
105
99
101

118
120
124
130

66
71
76
88

72.7
75.1
75.7
73.2

7.33
7.28
7.21
6.70

7.48
7.35
7.26
6.78

7.22
7.08
6.84
6.51

2003
Jan–Mar
Apr–June
July–Sept
Oct–Dec

109
99
95
97

130
138
129
127

79
84
86
104

72.4
72.7
72.9
71.8

6.61
6.43
6.41
6.26

6.75
6.52
6.47
6.35

6.36
6.04
6.12
6.05

2004
Jan–Mar
Apr–June
July–Sept
Oct–Dec

116
101
109
109

131
117
111
121

128
118
112
127

73.2
73.7
74.5
74.1

6.22
6.39
6.57
6.81

6.28
6.46
6.61
6.80

5.87
6.23
6.28
6.39

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

earlier. Almost 30 percent of the respondents reported
higher fund availability and just 7 percent lower, moving
the index of fund availability up to 121. This was the
fourth consecutive year of increased availability of funds.
Still, the amount of collateral required rose a bit, and
more banks tightened credit standards in the fourth quarter
versus the previous year. Collateral requirements inched
up at District banks, with 5 percent more raising than lowering the amount of collateral required from October to
December 2004. Similarly, respondents indicated there was
less tightening in credit standards for agricultural loans in
the fourth quarter (25 percent versus 30 percent in 2003).
Even with modest tightening of credit standards, only 1 percent of customers with operating credit are not likely to
qualify for new credit this year from the responding banks.
The rise in interest rates for agricultural loans continued
throughout 2004. As of January 1, 2005, the District average
for interest rates on new operating loans was 6.39 percent,
59 basis points higher than the first quarter cyclical low.
At an average of 6.81 percent, interest rates for farm real estate loans were up for a third consecutive quarter by a total
of 52 basis points. Interest rates on agricultural loans were
lowest in Illinois. The largest increases occurred in Wisconsin,
which had the highest interest rate on operating loans.

Looking forward
In terms of the near future, the responding bankers tended
to see higher levels of loan volumes, especially for operating and farm machinery loans. A third of the bankers reported expectations of higher non-real-estate loan volume
in the first quarter of 2005, compared to only 9 percent
projecting lower volume. Substantially more respondents
expected higher volumes for operating and farm machinery loans rather than lower volumes (about 40 percent

versus 10 percent for both, respectively). Fifteen percent
more bankers anticipated higher rather than lower real estate loan volume in the first quarter of 2005. Grain storage
construction loans were also expected to increase in volume a bit. Marginally lower volumes were anticipated for
feeder cattle, dairy, and Farm Service Agency (FSA) loans.
Respondents expected farmers to boost capital expenditures in the year ahead. The strongest outlook was
for machinery and equipment, with 62 percent of the
bankers seeing higher spending, as well as 46 percent for
higher spending on trucks and automobiles. For buildings
and facilities, 29 percent were looking for higher expenditures and just 10 percent lower levels. More than one-third
of respondents (36 percent) expected expenditures on land
purchases or improvements to be higher, while 10 percent
expected such expenditures to be lower.
David B. Oppedahl, Business economist
AgLetter (ISSN 1080-8639) is published quarterly by the Research
Department of the Federal Reserve Bank of Chicago. It is prepared
by David B. Oppedahl, business economist, and members of the
Bank’s 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.
© 2005 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 on the Bank’s website at
www.chicagofed.org.

SELECTED AGRICULTURAL ECONOMIC INDICATORS

Percent change from
Latest
period

Value

Prior
period

Year
ago

Two years
ago

January
January
January
January
January
January
January
January
January
January
January

110
100
1.98
84.20
5.32
3.42
121
53.30
94.2
15.9
55.8

–0.9
–2.9
–2.9
–0.1
–2.4
0.9
0.8
1.3
2.6
–3.0
–14.7

–2
–12
–17
5
–28
–7
10
43
10
20
–40

11
–3
–15
–8
–3
–12
26
59
21
35
–19

190
189

–0.4
0.2

3
3

5
6

December 1
December 1
December 1
December
December
January

9,449
2,305
1,431
2.04
1.86
13.2

N.A.
N.A.
N.A.
5.3
3.2
1.5

19
36
–6
3
–1
1

24
9
8
–3
8
–9

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

November
November
November

23,873
13,461
10,412

–5.4
–11.5
3.8

6
5
7

28
32
23

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

December
November
November
November

5,681
177
183
86

–3.2
11.4
3.8
–9.0

15
5
–2
10

14
22
20
8

January
January
January
January

6,954
4,577
2,377
356

–20.3
–30.1
9.2
–42.9

19
21
17
41

76
60
118
102

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)
Barrow and gilts ($ per cwt.)
Steers and heifers ($ per cwt.)
Milk ($ per cwt.)
Eggs (¢ per doz.)
Consumer prices (index, 1982–84=100)
Food
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.)*

Farm machinery (units)
Tractors, over 40 HP
40 to 100 HP
100 HP or more
Combines
N.A. Not applicable
*23 selected states.
**Includes net CCC loans.

December
December