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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago

AgLetter

Number 1948	

May 2010

FARMLAND VALUES AND CREDIT CONDITIONS
SAVE THE DATE

Summary
The year-over-year increase in farmland values was 4 percent in the first quarter of 2010 for the Seventh Federal
Reserve District. There was also a quarterly increase of
2 percent in the value of “good” agricultural land, according
to the April 1 surveys returned by 215 District bankers.
At 1 percent, the growth in District farmland cash rental
rates slowed down dramatically from 2009. The demand to
purchase farmland during the first quarter of 2010 strengthened from a year ago. A rising share of purchases by farmers
buoyed this demand. However, the amount of farmland for
sale, the number of farms sold, and the acreage sold weakened in the first three months of 2010 relative to the same
period in 2009. The vast majority of the bankers anticipated
stable land values during the second quarter of 2010.

On November 9, 2010, the Federal Reserve Bank of
Chicago will hold a conference to examine the intersections
of Midwest agriculture and rural development. Details
are forthcoming on www.chicagofed.org and in the next
issue of AgLetter.

Farmland values
Agricultural land values increased 4 percent for the first
quarter of 2010 compared with the first quarter of 2009.
However, the year-over-year gains in the value of “good”
agricultural land were restricted to the southern part of the
District. Farmland values increased 4 percent in Illinois, 7 percent in Indiana, and 8 percent in Iowa. Wisconsin farmland values decreased 1 percent. For the first quarter of
2010 relative to the fourth quarter of 2009, District farmland values rose 2 percent, with only Illinois having an
increase of less than 2 percent (see map and table below).

Trends in agricultural credit conditions were unchanged during the first quarter of 2010. There was stronger
demand for non-real-estate farm loans and greater availability of funds for lending compared with the same period in
2009. Loan repayment rates were lower, while renewals and
extensions of agricultural loans were higher. Interest rates
on farm loans continued to move lower, averaging 6.13 percent for new operating loans and 6.04 percent for real estate
loans. Loan-to-deposit ratios averaged 73.7 percent—more
than 5 percent under the level preferred by the respondents.

While farmland values edged higher, cash rental
rates for agricultural land plummeted, rising just 1 percent
in 2010. Cash rental rates in Illinois were unchanged from
2009. The rest of the District saw increases in cash rental
rates: 3 percent in Indiana, 1 percent in Iowa, and 8 percent
in Wisconsin (in part reflecting a rise from a low number
last year). However, after adjusting for inflation using the

Percent change in dollar value of “good” farmland
Top:
January 1, 2010 to April 1, 2010
Bottom: April 1, 2009 to April 1, 2010
	
	
	

Illinois	
Indiana	
Iowa	
Michigan 	
Wisconsin	
Seventh District	

XII

VI
0
–6

January 1, 2010	
to	
April 1, 2010	

April 1, 2009
to
April 1, 2010

+  	
1
+  	
4
+  	
3
*	
+  	
2
+  	
2

+ 
4
+ 
7
+ 
8
*
– 
1
+4

I
0
+7

+1
+6

II
+1
+8

+7
III +10

VII
+5
+6

IV

XIV

*

X
+2
+3 VIII

V

+5
+4

*Insufficient response.

*

*

IX
–3
+3

+4
+7

XV

XI
+3
+8

XVI

+4
+6

1.	 Annual percentage change in Seventh District farmland
	 cash rental rates adjusted by PCE
percent

20

10

0

–10

–20
1981

’85

’89

’93

’97

2001

’05

’09

Sources: Author’s calculations based on data from Federal Reserve
Bank of Chicago farmland value surveys; and U.S. Bureau of Economic
Analysis, Personal Consumption Expenditures (PCE) Price Index, from
Haver Analytics.

Personal Consumption Expenditures Price Index, in “real”
terms District cash rental rates declined 1 percent from
2009 (see chart 1). After three years of large increases, the
change in cash rental rates once again fit into the range of
the previous decade.
The increase in farmland values was larger than
that for cash rental rates, leading to a rise in the price-toearnings (P/E) ratio for farmland (see chart 2). A higher
P/E ratio reflected relatively stronger demand to own
farmland, as land value gains outpaced the current earnings of farmland (represented by cash rental rates). In
an asset valuation model, the present price of an asset
should reflect both current profitability and expectations
for future earnings. The P/E ratio for farmland can be constructed as the ratio of an average farmland value per acre
to the cash rental rate per acre. The shift back toward a
higher P/E ratio coincided with greater uncertainty about
the profitability of crop production, which likely held
down bids by farmers to cash-rent farmland.
Some respondents noted cash rental rates were too
high for operating loans to be dispersed on a cash flow
basis. Moreover, tight and negative margins were expected
to create difficulties for some borrowers, since crop income
may likely be down from a year ago, though input costs
may likely be up. According to the U.S. Department of
Agriculture (USDA), prices in the first quarter of 2010
averaged $3.59 per bushel for corn (11 percent below a year
ago) and $9.53 per bushel for soybeans (almost unchanged
from a year ago). Using the USDA index of prices paid by
farmers, there was an increase of 1.1 percent in input costs
for agriculture compared with the first quarter of 2009.
The arrangements for farmland operated by someone
other than the owner seemed to stabilize in the District,

with a split of about 80 percent rented for cash, 17 percent
on a crop share basis, 1 percent on a bushel basis, and
2 percent on other terms. Illinois continued to differ from
the other states of the District with a lower percentage of
cash rentals (65 percent); 30 percent rented on crop shares,
1 percent on a bushel basis, and 4 percent on other arrangements. The larger proportion of other arrangements in
Illinois could indicate a move toward custom farming,
where the landowner faces more of the risks and reaps
more of the rewards by hiring a farmer to perform field
operations. Greater variability in crop prices and input costs
has spurred some landowners to pursue a more active
role in managing their cropland in hopes of achieving
higher returns.
Moreover, farmers purchased land at a higher rate
than a year ago: 25 percent more responding bankers saw
the share of land bought by farmers increase rather than
decrease in the first quarter of 2010 relative to the first
quarter of 2009. Overall, 27 percent of the respondents
observed higher demand for the purchase of agricultural
land during this period compared with the same period
last year, whereas 12 percent observed lower demand. In
addition, less farmland was noticed for sale than a year
ago by 35 percent of respondents, while more farmland
was noticed for sale by 20 percent. There were fewer farms
sold than a year ago, with 17 percent of the bankers reporting higher farm sales and 37 percent reporting lower sales.
Finally, the surveys indicated a decrease in the acreage of
all farms sold during the first three months of 2010 compared with the same period in 2009.

Credit conditions
Agricultural credit conditions were mixed for the first quarter of 2010. Wisconsin’s credit conditions were uniformly
poor, indicative of the tough climate for dairy producers.
Reaching its highest level in a year, the index of demand
for non-real-estate farm loans was 109, since 29 percent
2. Seventh District price-to-earnings ratio for farmland
index, 1981 = 1.00

1.50

1.25

1.00

0.75
0.50
1981

’85

’89

’93

’97

2001

’05

’09

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

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

		
2008
	 Jan–Mar	
	 Apr–June	
	 July–Sept	
	 Oct–Dec	

(index)b	

(index)b	

(index)b	

(percent)	

(percent)	

(percent)	

(percent)

110	
101	
117	
115	

129	
124	
103	
110	

147	
137	
115	
113	

75.9	
75.2	
78.8	
76.4	

6.74	
7.06	
6.74	
6.21	

6.86	
6.77	
6.85	
6.33	

6.41
6.51
6.56
6.23

2009
	Jan–Mar 	
	 Apr–June	
	 July–Sept	
	 Oct–Dec 	

116	
88	
95	
102	

112	
118	
121	
125	

105	
93	
89	
92	

76.2	
77.3	
75.3	
75.4	

6.20	
6.18	
6.17	
6.23	

6.31	
6.36	
6.35	
6.40	

6.14
6.16
6.13
6.13

2010
	 Jan–Mar	

109	

127	

79	

73.7	

6.13	

6.25	

6.04

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 percentage of bankers that responded “lower” from the percentage that responded “higher” and adding 100.
Note: Historical data on Seventh District agricultural credit conditions are available for download from the AgLetter webpage, www.chicagofed.org/webpages/publications/agletter/index.cfm.
a

of the responding bankers reported higher demand and
20 percent reported lower demand. Thirty-two percent
of the bankers noted that more funds were available for
lending from January through March than in the same
period a year ago, and 5 percent noted that fewer funds
were available; thus, the index of funds availability rose
to 127, a level not attained in the past two years.
The index of non-real-estate farm loan repayment rates
dropped to 79 for the first quarter of 2010; higher rates of
loan repayment were reported by 9 percent of the respondents, while 30 percent reported lower rates. This was the
lowest value for this index since the first quarter of 2003,
and it reflected the troubles experienced in the livestock
industry. Although hog and cattle prices recovered in the
first quarter of 2010, milk prices retreated. Not surprisingly,
loan renewals and extensions rose noticeably from a year
ago. Collateral requirements were up again from a year ago,
with 24 percent of reporting banks requiring more collateral during the first three months of 2010 than in the same
period last year and less than 1 percent requiring less.
The average loan-to-deposit ratio was 73.7 percent,
the lowest level since 2004. The reported ratios were below
the level desired by 58 percent of the responding bankers
and above the desired level for 14 percent. Bankers reported
that the use of farm loan guarantees provided by the Farm
Service Agency (FSA) of the USDA had risen to almost
6 percent of the District farm loan portfolio.
As of April 1, 2010, the District average for interest
rates on new operating loans was 6.13 percent, the lowest
in the survey’s set of observations dating back to the early 1970s. Interest rates on agricultural real estate loans
moved down to their lowest levels in six years, averaging
6.04 percent.

Looking forward
Participating bankers conveyed a stronger sense that farmland values would remain the same in the second quarter
of 2010. While 85 percent of the respondents anticipated agricultural land values to be unchanged in their area during
the period from April through June, the remaining 15 percent were split evenly between those who expected farmland values to rise and those who expected them to fall.
Responding bankers forecasted that the volume of
non-real-estate farm loans would increase during the second quarter of 2010 compared with the same quarter in
2009. The respondents anticipated the volumes for operating, grain storage construction, and FSA guaranteed
loans would grow, while farm machinery, feeder cattle,
and dairy loan volumes would diminish. The bankers expected real estate loan volume in the second quarter of
2010 to remain the same as in the second quarter of 2009.
David B. Oppedahl, 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, 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.
© 2010 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 www.chicagofed.org.

Selected agricultural economic indicators

Percent change from

	
	
	
	

Latest		
period	
Value	

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 & gilts ($ per cwt.)	
		 Steers & heifers ($ per cwt.)	
		 Milk ($ per cwt.)	
		 Eggs ($ per doz.)	

April	
April	
April	
April	
April	
April	
April	
April	
April	
April	
April	

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

March	
March	

Prior	
period	

Year	
ago	

Two years
ago

138	
150	
3.51	
109	
9.48	
4.69	
127	
53.70	
101.00	
14.60	
0.77	

– 1.4	
– 2.0	
– 1.1	
0.9	
1.0	
– 0.2	
– 0.8	
2.7	
5.6	
– 1.4	
– 33.9	

7	
0	
– 9	
– 13	
– 3	
– 18	
13	
21	
14	
23	
– 17	

– 5
– 11
– 32
– 26
– 21
– 54
– 1
18
10
– 19
– 26

218	
219	

0.0	
0.2	

2	
0	

2
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.)*	

March 1	
March 1	
March 1	
March	
March	
March	

7,694	
1,270	
1,352	
2.21	
2.04	
15.4	

N.A.	
N.A.	
N.A.	
13.1	
16.1	
12.4	

11	
– 2	
30	
3	
4	
1	

12
– 11
91
5
4
1

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

March	
March	
March	
March	

9,876	
192	
132	
74	

7.0	
35.8	
– 23.3	
– 3.7	

23	
12	
29	
– 4	

– 7
– 11
10
– 22

Farm machinery (units) 							
	 Tractors, over 40 HP	
April	
8,207	
N.A.	
– 4	
– 24
		 40 to 100 HP	
April	
5,018	
N.A.	
– 8	
– 33
		 100 HP or more	
April	
3,189	
N.A.	
2	
– 3
	 Combines	
April	
633	
N.A.	
13	
51
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.