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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1940	

AgLetter
FARMLAND VALUES AND CREDIT CONDITIONS

May 2008

CONFERENCE ANNOUNCEMENT

Summary
Farmland cash rental rates in the Seventh Federal Reserve
District soared higher this year compared with those in
2007, rising 21 percent. But the year-over-year increase in
District farmland values eased to 14 percent in the first
quarter of 2008. A survey of 240 bankers in the Seventh
District on April 1, 2008, indicated a slower quarterly increase of 2 percent in the value of “good” agricultural land.
Almost half of the bankers expected increases in land values
for the second quarter of 2008; nearly half expected stable
land values; and only 2 percent expected decreases. In
addition, two-thirds of the respondents reported that the
demand to purchase farmland exceeded the demand of
the winter and early spring a year ago.

average loan-to-deposit ratio fell from three months ago
to 75.9 percent (5 percent below the preferred ratio).

Credit conditions continued to improve in the District
during the first quarter of 2008. Demand for non-real-estate
loans and the availability of funds increased. Loan repayment rates were at a high level; renewals and extensions
of agricultural loans were lower. Respondents expected
higher loan demand for the second quarter of 2008, especially for real estate, operating, farm machinery, and grain
storage loans. As of April 1, District interest rates averaged
6.74 percent on new operating loans and 6.41 percent on
farm real estate loans—the lowest rates since 2004. The

Farmland values
The District average year-over-year increase in the value
of “good” agricultural land for the first quarter of 2008
dipped to 14 percent—still the third largest such increase
since 1980. Compared with the first quarter of 2007, Iowa
and Michigan land values climbed the most at 17 percent,
followed by Illinois at 14 percent and Indiana and Wisconsin
at 10 percent (see map and table below). Quarterly farmland values rose less than in the fourth quarter of 2007
for the District and all states except Wisconsin.

Agricultural Markets and Food Price Inflation
On October 2, 2008, the Federal Reserve Bank of Chicago
will hold a conference on the economic impacts of volatile
agricultural costs and food price inflation, including the
potential implications of persistent changes in food prices
on price stability at the macroeconomic level. Please
check the conference website at www.chicagofed.org
under "Upcoming Events" for more information and the
forthcoming agenda.

Percent change in dollar value of “good” farmland
Top:
January 1, 2008 to April 1, 2008
Bottom: April 1, 2007 to April 1, 2008
	
	
	
Illinois	
Indiana	
Iowa	
Michigan 	
Wisconsin	
Seventh District	

January 1, 2008	
to	
April 1, 2008	
+4	
0	
+1	
+1	
+6	
+2	

April 1, 2007		
to
April 1, 2008
+14
+10
+17
+17
+10
+14

VI
+8
+12
I
+2
+19

II
–1
+21
–2
III +14

+6
+17

*
VII
+4
+8

IV

XIV
*

X
–1
+10 VIII

V
+2
+13

*Insufficient response.

XII

*

IX
+1
+19

XV

XI
+6
+15

XVI

–2
+10

0
+10

more and as higher input costs have reduced the returns
from planting corn. In particular, fertilizer costs increased
52 percent from the first quarter of 2007, according to data
from the Producer Price Index. Crop prices are forecasted
by the USDA to move up even more because of strong global
demand and tight ending stocks of both corn and soybeans.
For the 2008–09 crop year, the USDA estimated price intervals of $5.00 to $6.00 per bushel for corn and $10.50 to
$12.00 per bushel for soybeans. With spring planting delays in the U.S., there is a higher likelihood for further
upward revisions in these estimated price intervals.

1. 	Annual percentage change in Seventh District farmland
	 cash rental rates adjusted by CPI-U
percent
20
15
10
5
0
–5
–10
1990

’92

’94

’96

’98

2000

’02

’04

’06

’08

Sources: Author's calculations based on data from Federal Reserve Bank 	
of Chicago farmland value surveys; and U.S. Bureau of Labor Statistics,
Consumer Price Index for All Urban Consumers (CPI-U).

Surging cash rental rates for farmland reflected competition among farmers for additional acres to plant in 2008.
Cash rents jumped 21 percent from 2007—the largest increase since these data were first collected in 1981 and much
larger than the revised increase of 12 percent for 2007. State
increases in cash rental rates were 18 percent for Illinois,
17 percent for Indiana, 23 percent for Iowa, 12 percent for
Michigan, and 26 percent for Wisconsin. Adjusting for
inflation using the Consumer Price Index, the “real” cash
rental rate for the District climbed 16.5 percent from a year
ago (see chart 1), surpassing the previously largest increase
of last year. The arrangements for farmland operated by
someone other than the owner shifted toward more cash
rentals (80 percent) at the expense of crop shares (17 percent), with 1 percent on a bushel basis and 2 percent on
other terms. This trend even occurred in Illinois as renting
on a crop share basis slid to 31 percent, while cash rentals
edged up to 66 percent of all arrangements, still the lowest
percentage in the District.
The key factors driving both cash rental rates and
farmland values higher were elevated crop prices and the
prospect that corn and soybean prices will continue to rise.
Prices in the first quarter of 2008 averaged $4.40 per bushel
for corn and $11.05 per bushel for soybeans, according to the
U.S. Department of Agriculture (USDA). Compared with a
year ago, corn prices were 33 percent higher and soybean
prices were 64 percent higher. USDA survey data on 2008
prospective plantings reflect these price movements. U.S.
corn acres are projected to fall 8.1 percent from 2007 levels,
and U.S. soybean acres are projected to rise 17.5 percent.
District corn acres are expected to drop 7.6 percent, while
District soybean acres are expected to climb 13 percent.
These numbers represent a market response to last year’s
jump in corn acres, as soybean prices have risen relatively

Future crop prices may propel cash rents and farmland values even higher in the quarters ahead. It’s not
surprising that 49 percent of reporting bankers expected
farmland values to increase and 49 percent expected stable
values during the period from April through June. Only
2 percent of the bankers thought that farmland values
would decrease in their areas.
Farm real estate activity over the winter and early
spring was higher than a year ago. More farmland was
observed for sale by 37 percent of respondents, while less
farmland was observed for sale by 16 percent. There were
more farms sold than a year ago in all District states, especially in Iowa where over half of the bankers reported
higher farm sales. Similarly, there was an increase in the
acreage of all farms sold.
Two-thirds of the respondents saw higher demand
for the purchase of agricultural land compared with the
first quarter of 2007 (only 6 percent reported lower demand).
This year Indiana and Iowa again displayed the most demand for farmland purchases, with 73 percent of the bankers
reporting higher demand and 3 percent or less reporting
lower demand for farmland purchases. Farmers bought a
larger portion of the total acreage sold in the District compared with a year ago, as 44 percent observed a higher share
for farmers versus 12 percent a smaller share.

2. Quarterly District farm loan interest rates
percent

13

11

Farm
operating

9
Farm real
estate

7

5
1990

’92

’94

’96

’98

2000

’02

’04

’06

’08

Credit conditions at Seventh District agricultural banks
		
		
		
		

	
	
	
	
	
Interest rates on farm loans
						
Loan	
Funds	
Loan	
Average loan-to-	
Operating	
Feeder	
Real
demand	
availability	
repayment rates	
deposit ratio	
loansa	
cattlea	
estatea

		

(index)b	

(index) b	

(index)b	

2006
	 Jan–Mar	
	 Apr–June	
	 July–Sept	
	 Oct–Dec	

131	
115	
124	
109	

102	
101	
95	
116	

87	
85	
87	
130	

76.7	
78.0	
79.1	
76.6	

8.30	
8.76	
8.73	
8.71	

8.27	
8.66	
8.70	
8.70	

7.48	
7.85
7.82
7.74

2007
	 Jan–Mar	
	 Apr–June	
	 July–Sept	
	 Oct–Dec	

128	
121	
118	
110	

113	
115	
118	
126	

131	
117	
122	
149	

78.4	
77.8	
78.1	
77.2	

8.61	
8.65	
8.42	
7.82	

8.60	
8.63	
8.40	
7.89	

7.67
7.70
7.53
7.09

2008
	 Jan–Mar	

110	

129	

147	

75.9	

6.74	

6.86	

6.41

(percent)	

(percent)	

(percent)	

(percent)

Note: Historical data on Seventh District agricultural credit conditions is available for download from the AgLetter homepage, www.chicagofed.org/economic_research_and_data/ag_letter.cfm.
a
At end of period.
b
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.

Credit conditions
Continued improvement in agricultural credit conditions
during the first quarter of 2008 demonstrated the strength of
crop farming, while masking concerns related to livestock
production. As corn and soybean prices soared, increased
feed costs stressed livestock operations, though the measures of credit conditions may not adequately reflect this
departure from the overall financial strength of agriculture.
The index of loan demand was 110, down from the level of
a year ago, as 36 percent of the bankers noted higher demand
for non-real-estate loans and 26 percent lower demand. These
numbers were similar in the last quarter of 2007. They departed from the typical seasonal trend of bigger increases in loan
demand for first quarters. With 33 percent of the bankers
reporting that more funds were available from January
through March than a year ago and 4 percent reporting that
fewer funds were available for lending, the index of funds
availability rose to 129, its highest level in four years.
Non-real-estate farm loan repayment rates were
about the same as those in the fourth quarter of 2007 and
higher than those of the first quarter a year ago. With
51 percent of the bankers stating there were higher rates
of loan repayment and 4 percent lower rates, the index of
loan repayment rates was 147, close to the previous quarter’s 20-year high. There was an acceleration in the decline of loan renewals and extensions, with just 6 percent
of the respondents seeing increases and 38 percent decreases. The banks tightened collateral requirements
from last year, as 10 percent required more collateral in
the first three months of 2008 and 2 percent required less.
Loan-to-deposit ratios averaged 75.9 percent, the
lowest level in two years. These ratios were below the
level desired by 65 percent of the responding bankers,
though 11 percent reported ratios above the desired level.

Interest rates on agricultural loans were down to
their lowest levels since 2004 (see chart 2). As of April 1,
2008, the District average for interest rates on new operating loans was 6.74 percent. Interest rates for farm real
estate loans averaged 6.41 percent.

Looking forward
The volume of farm loans made by the banks of respondents
during the second quarter of 2008 was expected to be higher
than in 2007. The responding bankers anticipated the volumes
for operating, farm machinery, and grain storage construction loans to grow, while feeder cattle and dairy loan volumes would retreat. Real estate loan volume from April
through June was expected to increase by 33 percent of
the bankers and to decrease by 13 percent.
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.
© 2008 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

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.)	

April	
April	
April	
April	
April	
April	
April	
April	
April	
April	
April	

144	
167	
5.13	
152.00	
11.80	
10.10	
125	
41.70	
90.1	
18.0	
1.160	

–1.4	
0.0	
9.1	
9.4	
2.6	
–4.7	
–3.1	
1.7	
–2.8	
–0.6	
–7.2	

8	
18	
51	
23	
72	
107	
–2	
–13	
–10	
8	
44	

30	
40	
143	
45	
114	
165	
19
0	
1	
49	
127

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

April	
April	

215	
211	

0.6	
0.8	

4	
5	

7	
9

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.)*	

March 1	
March 1	
March 1	
April	
April	
April	

6,859	
1,428	
857	
2.26	
2.02	
14.8	

N.A.	
N.A.	
N.A.	
7.4	
2.6	
–2.0	

13	
–20	
–12	
12	
18	
3	

–2	
–14	
–13	
15	
25	
4

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

March	
March	
March	
February	

10,568	
216	
119	
86	

4.2	
–0.4	
–14.7	
–3.2	

56	
27	
40	
12	

10,969	
7,665	
3,304	
420	

25.9	
34.9	
9.1	
–5.2	

–4	
–8	
6	
35	

5	
–2	
28	
1	

	
	

66	
19
17	
24

April	
April	
April	
April	

	
	

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

	
	
	

	

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.