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• Federal Reserve Bank of Chicago .kg tic to rflonics ee tEeter January 24, 1975 FARMLAND ALU , while continuing their upward pace, slackene appreciably during the fourth quarter of 1974. According to a January survey of nearly 700 Seventh District agricultural bankers, the a)f good district farmland rose slightly less than 3 percent, down sharply from the 8 percent increase reported during the third quarter. Furthermore, this is the third consecutive quarterly survey indicating a drop in the annual rate of farmland appreciation. Slowdowns in rates of advance were particularly evident in Michigan and Wisconsin, where bankers reported virtually no rise in values during the fourth quarter. (See back of Letter.) Farmland values in Illinois, Indiana, and Iowa rose 3 percent, 4 percent, and 5 percent, respectively. Seventh District bankers also indicated that the number of farms sold during 1974 was off slightly from 1973. (Two states, Michigan and Wisconsin, were responsible for most of the decline.) This situation corresponds with a recent USDA report indicating that while the supply of farms offered for sale in the nation remained virtually unchanged, fewer people were looking for farmland. Contributing to the marked slowdown in land value appreciation was the fact that agricultural prices trended downward during the fourth quarter. More importantly, however, might be the longer-term outlook for the economy and for the agricultural sector in particular. Continuing recession and increasing unemployment suggest that expansion in domestic demand for agricultural products will be limited during 1975. The cost of farm production inputs, nevertheless, continues to increase with only limited relief in sight. World demand may wane as a result of the deteriorating international economic situation. Exports have accounted for about one-fourth of the total value of U.S. agricultural production in recent years. • I Book Coll tion — The surge in farmland values in the last two years—up nearly 50 percent—can be compared to only two other periods in this century. During 1919-20 and 1951-52, farmland values measured nationally rose about 30 and 25 percent, respectively. In both periods crop prices increased sharply and substantial inflationary pressures were evident throughout the general economy. Both periods were followed by drops in crop prices and declines in inflationary pressures. Land prices dropped sharply after 1920 and did not return to their 1920 levels until 1951. The adjustment Number 1310 after 1952 was much less severe. Prices stabilized for a couple of years and then a slow but steady growth pattern emerged. Unprecedented Gains in Farmland a ues Span Two Consecutive Years Percent change 25 20 15 10 0 1965 '66 '67 '68 69 '70 '71 '72 '73 '74 Note: Based on quarterly land value survey, Federal Reserve Bank of Chicago. Although neither of the two periods are direct parallels of the past two years, it seems likely that substantial adjustments in the rate of increase in land appreciation will be forthcoming in the near future— and the latest survey tends to confirm this. Over threefourths of the bankers responding to the survey felt that farmland vraga,) would stabilize in the first quarter of 1975; about 14 percent suggested farmland les-•i might continue to rise, while nearly 10 percent thoughtev–aTITO might decline. Given the aggregate increase in farmland values over the past two years, the recent downward trends in livestock production, weakening crop prices, and the high degree of uncertainty in domestic and world economic conditions, it ap ears that near-term upward pressures on farmland lue may diminish. Accumulating circumstances suggest that farmland prices will likely remain near current levels during 1975. Terry Francl Agricultural Economist Percent change in dollar value of "good" farmland TOP: BOTTOM: October 1, 1974 to January 1, 1975 January 1, 1974 to January 1, 1975 ‘",.....,..... October 1, 1974 to January 1, 1974 to January 1,1975 January 1,1975 +25 +3 +4 +5 0 0 +3 Illinois Indiana +28 +26 +14 +16 +23 Iowa Michigan Wisconsin SEVENTH DISTRICT Current trend in farmland values based on opinions of country banks as reported January 1, 1975 Percent of banks reporting is: TOP: CENTER: BOTTOM: Up Stable Down II 12 82 6 -cl___. 28 67 5 20 75 5 14 III Up Illinois Indiana Iowa 11 10 18 Michigan Wisconsin 17 SEVENTH DISTRICT 11 14 Note: Totals may not add due to rounding. Stable 77 76 77 80 76 77 13 87 0 Down 12 14 5 3 13 9 78 11