View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

The Agricultural Newsletter
from the Federal Reserve Bank of Chicago

AgLetter

Number 1964	

May 2014

FARMLAND VALUES AND CREDIT CONDITIONS

SAVE THE DATE

Summary
Agricultural land values in the Seventh Federal Reserve
District were still higher than a year ago during the first
quarter of 2014, but by just 1 percent. In contrast, “good”
farmland values depreciated 1 percent in the first quarter
of 2014 relative to the fourth quarter of 2013. Moreover,
cash rental rates for District agricultural land were down
2 percent for 2014 compared with 2013. Based on the survey
responses of 214 District agricultural bankers, these results
highlighted the variation in farmland values due to the
localization of farmland markets; increases in farmland
values in some areas contrasted with decreases in others.
Demand to purchase agricultural land was weaker in the
three- to six-month period ending with March 2014 compared with the same period ending with March 2013, yet
there were pockets where farmers remained keen to purchase additional land. The number of farms sold, the
amount of acreage sold, and the amount of farmland for
sale were down during the most recent winter and early
spring compared with the previous winter and early spring.
Almost three-quarters of responding bankers expected
farmland values to be stable during the second quarter of
2014, but there was growing sentiment among them that
agricultural land values would be headed downward.

On November 17 2014, the Federal Reserve Bank of Chicago
,
will hold a conference to examine the role of farm income in
the economy of the rural Midwest. Details are forthcoming on
www.chicagofed.org and in the next issue of AgLetter.

non-real-estate loans was up relative to a year ago for a
second straight quarter, which hadn’t occurred in four years.
The availability of funds to lend improved compared with
a year earlier, but repayment rates for non-real-estate farm
loans were lower than a year ago. Also, there were higher
levels of renewals and extensions of these loans. The average
loan-to-deposit ratio remained close to 67 percent for the
third quarter in a row. Interest rates on farm loans moved
lower in the first quarter of 2014, and a record low rate
was even set for feeder cattle loans.

Farmland values
Farmland values in the District edged down 1 percent in
the first quarter of 2014 relative to the fourth quarter of 2013.
Even with the first quarterly decrease in five years, the
year-over-year change in District agricultural land values
managed to stay positive in the first quarter of 2014. At
1 percent, the year-over-year increase was the smallest
since the third quarter of 2009, when the last decline was
registered. Notably, after adjusting for inflation using the

Credit conditions were mixed for District agricultural producers in the first quarter of 2014. Demand for

Percent change in dollar value of “good” farmland
Top:
January 1, 2014 to April 1, 2014
Bottom: April 1, 2013 to April 1, 2014
	
	
	

January 1, 2014	
April 1, 2013
to	to
April 1, 2014	
April 1, 2014

Illinois	
Indiana	
Iowa	
Michigan 	
Wisconsin	
Seventh District	

– 4	0
– 4	
+ 7
+ 1	
– 2
– 3	
– 1
+1	
+ 2
– 1	+1

VI
+3
+2
I
+1
– 3

– 3

+1
0

II
+4

– 4
III – 6

XII

*
VII

– 2

IV

XIV

+1

*

X
+6
+3 VIII

V
+2

*

+4

IX

– 11
– 5

– 4
+3

XI

– 4
+1

*Insufficient response.

XV
XVI

– 4
+10

that the spring rally in corn and soybean prices drew
additional interest in bidding by farmers for farmland,
especially for higher-quality ground.

1.	 Annual percentage change in Seventh District farmland
	 cash rental rates adjusted by PCEPI
percent
20

10

0

−10

−20
1981

’84

’87

’90

’93

’96

’99

2002 ’05

’08

’11

’14

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 Price Index (PCEPI),
from Haver Analytics.

Personal Consumption Expenditures Price Index (PCEPI),
there was indeed a year-over-year decrease in District
farmland values of almost 1 percent.
The District-wide quarterly and year-over-year
changes in farmland values masked the variability in outcomes throughout the District (see table and map on front
page). Even within states, there were some areas that experienced increases, while neighboring regions experienced
decreases. While Iowa and Wisconsin had the same yearover-year changes in farmland values as they did in the
fourth quarter of 2013, the large year-over-year gains for
Illinois and Michigan in the final quarter of last year evaporated in the first quarter of this year. Moreover, Indiana’s
increase in agricultural land values on a year-over-year
basis shrank to 7 percent in the first quarter of 2014—half
that of the previous quarter. In addition, all the states reversed the direction of their quarterly changes in farmland values from those of the fourth quarter of 2013.
Farmland markets slowed in the three- to six-month
period ending with March 2014 compared with the same
period ending with March 2013. Only 19 percent of the
survey respondents reported higher demand to purchase
farmland, while 26 percent reported lower demand. In
addition, there was a decrease in the amount of farmland
for sale during the most recent winter and early spring
relative to a year ago, as just 15 percent of the responding
bankers observed more farmland was up for sale in their
areas and 51 percent reported less. Likewise, the number
of farms and the amount of acreage sold were down in
the winter and early spring relative to a year ago. Survey
participants observed farmers having increased their share
of farmland acres purchased (relative to investors) in the
three- to six-month period ending with March 2014 versus the same period ending with March 2013 (19 percent
noted farmers increased their share and 7 percent noted
farmers decreased their share). Respondents mentioned

There was a 2 percent decline in District cash rates
to lease agricultural land for 2014 relative to 2013; this
was the first annual average decrease since 1999 and the
largest decrease since 1987. For 2014, farmland cash rental
rates registered annual average decreases of 4 percent in
Illinois, 1 percent in Indiana, 3 percent in Iowa, 1 percent
in Michigan, and 1 percent in Wisconsin. District cash rental
rates decreased about 4 percent from 2013 when adjusted
for inflation using the PCEPI (see chart 1)—only the second
negative result of the past decade according to this measure.
Given this drop, the inflation-adjusted index of farmland
cash rental rates was down as well, after establishing new
highs in the previous two years. Similarly, until 2014, the
index of inflation-adjusted agricultural land values had
reached new records every year since 2011. Changes in
cash rental rates have tended to lag changes in farmland
values, but did not in 2014 (see chart 2).
It seems plausible that the drops in 2014 cash rental
rates reflected lower expectations for profits in 2014 as
crop prices fell last fall, which provided ammunition for
farmers to negotiate lower rates for leases. According to
data from the U.S. Department of Agriculture (USDA),
corn prices were down 37 percent and soybean prices
were down 8.5 percent in the first quarter of 2014 from a
year ago, following a more plentiful harvest in 2013 than
that reduced by drought in 2012. Also, lower expectations
for crop revenues in 2014 relative to previous years could
have contributed to lower levels of cash rental rates through
smaller expected bonus payments made under flexible
cash rental arrangements. (Because farm operators’ returns
have exceeded traditional levels in recent years, landlords
increasingly receive variable bonuses to supplement fixed
cash payments.)

2.	Indexes of Seventh District farmland adjusted by PCEPI
index, 1981=100
200

150
Farmland
values
100
Cash
rental rates
50

0
1980 ’82 ’84 ’86 ’88 ’90 ’92 ’94 ’96 ’98 2000 ’02 ’04 ’06 ’08 ’10 ’12 ’14

Note: Both series are adjusted by PCEPI for the first quarter of each year.
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 Price Index (PCEPI), from
Haver Analytics.

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	

(percent)	

(percent)	 (percent)	(percent)

2013
	Jan–Mar	
	Apr–June	
July–Sept	
	Oct–Dec	

67	
87	
91	
120	

161	
142	
128	
121	

143	
129	
115	
91	

63.7	
64.6	
66.9	
67.3	

4.91	
4.94	
4.94	
4.99	

5.12	
5.16	
5.14	
5.10	

4.60
4.65
4.68
4.94

2014
	Jan–Mar	

114	

128	

96	

67.0	

4.93	

5.07	

4.66

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 percentage of bankers who responded “lower” from the percentage who 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

b

In contrast to crop farming, the livestock sector has
returned to profitability as milk, hog, and cattle prices have
risen dramatically (31 percent, 48 percent, and 19 percent
higher than April 2013 prices, respectively). Falling feed
costs (reflecting falling grain prices) also boosted livestock
profits, helping support farmland values in some parts of
the District where the mix of agriculture includes a significant livestock component.

Credit conditions
Agricultural credit conditions exhibited both positive and
negative developments in the first quarter of 2014 compared
with the first quarter of 2013. The index of demand for nonreal-estate farm loans was 114, indicating an increase in
demand. Thirty-one percent of the responding bankers observed higher loan demand compared with a year ago, and
17 percent observed lower demand. At 128, the index of
funds availability still denoted improvement, with 30 percent
of the survey respondents reporting their banks have more
funds available to lend and only 2 percent reporting their
banks have fewer funds. The average loan-to-deposit ratio
for the District remained near 67 percent for the third quarter
in a row. Also, as of April 1, 2014, average interest rates had
dipped to 4.93 percent for operating loans and 4.66 percent
for agricultural real estate loans. The average interest
rate on feeder cattle loans set a new low for the survey
of 5.07 percent.
The index of repayment rates for non-real-estate farm
loans was 96 for the first quarter of 2014, with 14 percent
of the responding bankers noting higher rates of repayment
and 18 percent noting lower rates; this index value primarily
reflected the deterioration in agricultural conditions in
Iowa, where drought has persisted longer than in the rest
of the District. Fifteen percent of the survey respondents
reported more loan renewals and extensions over the
January through March period of 2014 compared with
the same period last year, while only 8 percent reported
fewer of them. Four percent of the survey respondents
indicated that their banks required larger amounts of

collateral for loans during the January through March
period of 2014 relative to the same period last year, while
none indicated that their banks required smaller amounts.

Looking forward
For 2014, lower farm income from crop operations are expected to be partly offset by improved farm income from
livestock operations. Reflecting these expectations, almost
three-quarters of the survey respondents predicted farmland values to be stable during the second quarter of 2014;
only 2 percent expected farmland values to increase, while
24 percent expected them to decrease.
For the most part, non-real-estate farm loan volumes
were anticipated by survey respondents to increase during
the April through June period of 2014 compared with the
same period of 2013; in particular, they expected volumes
for operating loans, feeder cattle loans, and loans guaranteed
by the Farm Service Agency of the USDA to be up. However, farm real estate loan volumes were projected to diminish in the second quarter of 2014 compared with the second
quarter of 2013.
David B. Oppedahl, senior 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, senior
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.
© 2014 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
	
	
	
	

Prices received by farmers (index, 2011=100)	
	 Crops (index, 2011=100)	
		Corn ($ per bu.)	
		Hay ($ per ton)	
		Soybeans ($ per bu.)	
		Wheat ($ per bu.)	
	 Livestock and products (index, 2011=100)	
		 Barrows & gilts ($ per cwt.)	
		 Steers & 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.)*	
Agricultural exports ($ mil.)	
	Corn (mil. bu.)	
	Soybeans (mil. bu.)	
	Wheat (mil. bu.)	

Percent change from
Latest		
Prior	
Year	
Two years
period	
Value	 period	ago	 ago
April	
115	 3.6	 7	13
April	
98	
4.3	
–  8	
–  6
April	
4.73	
4.9	
–  32	
–  25
April	
191	
10.4	
–  2	
–  1
April	 14.50	 5.8	1	5
April	
6.92	
2.5	
–  10	
–  3
April	
133	 3.1	23	33
April	 91.40	 11.5	48	45
April	 151.00	 0.7	19	23
April	 25.50	 1.2	31	52
April	
1.28	 3.2	45	48
March	
March	

236	 0.2	2	3
240	 0.5	2	3

March 1	
March 1	
March 1	
March	
March	
March	

7,006	 N.A.	30	16
992	
N.A.	
–  1	
–  28
1,056	
N.A.	
–  14	
–  12
1.94	
8.3	
–  5	
–  10
1.86	
0.6	
–  4	
–  7
16.7	
12.1	1	1

March	 13,634	 4.2	17	14
March	
206	 52.0	202	 53
March	
117	
–  41.7	
72	
1
March	
79	
11.1	
–  22	
–  9

Farm machinery (units) 						
	 Tractors, 40 HP or more	
March	
8,069	
N.A.	
1	
15
		 40 to 100 HP	
March	
4,770	
N.A.	
8	
16
		 100 HP or more	
March	
3,299	
N.A.	
–  8	
15
	 Combines	
March	
772	
N.A.	
–  21	
38
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.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102