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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1918

November 2002

AgLetter
FARMLAND VALUES AND CREDIT CONDITIONS

the previous year in all District states, reinforcing growing
concern about financial stress in the agricultural economy.
Interest rates on agricultural loans dropped across the District again, the ninth quarterly drop in a row. Loan-to-deposit
ratios climbed to the highest average in two years, still about
3 percent below the average the bankers reported as their
desired ratio. Hence, there are a few positive signs mixed with
the signs of deterioration in agricultural credit conditions.

Summary
Demand to purchase farmland grew last quarter, especially
among nonfarm investors, contributing to the increase in
the value of “good” agricultural land for the Seventh Federal Reserve District. Based on a survey of more than 360
agricultural bankers as of October 1, 2002, the quarterly increase in farmland values rose to 2 percent, on average, for
the District as a whole. For the twelve months ending September 30 the increase was 7 percent. The year-over-year increase exceeded that of last year. Looking ahead, more bankers
expected farmland values to go up and fewer expected
farmland values to decline in the next three months.

Farmland values
Overall, the value of “good” agricultural land continued
to rise in the third quarter of 2002, but the survey provided evidence of differences among District states (see map
and chart below). From July 1 to October 1, the rate of
change in Michigan’s farmland values moved ahead of the
other states with a 4 percent increase (quarter-to-quarter),
whereas Illinois, with no change, trailed the rest. Wisconsin
experienced reduced upward pressure on farmland values
in the past year, as dairy prices recover very slowly from
lows not seen since the 1970s. Farmland value gains in
Indiana, where crop yields were poor, have also slowed,
with a 1 percent increase, on average, in the third quarter.
Iowa exhibited steady growth of 2 percent for the quarter,
as crop yields were even stronger than expected.

There has been some deterioration in agricultural credit conditions from a year ago according to District bankers.
In the third quarter, although the availability of funds was
greater than last quarter but down slightly from a year ago,
demand for loans was unchanged. However, a larger proportion of banks required increased collateral, which may
have constrained demand. More renewals and extensions of
loans were generated in the third quarter than a year earlier, according to the respondents. Even with an improvement
from last quarter, the rate of loan repayment declined from

Percent change in dollar value of “good” farmland
XII
VI

Top:
July 1, 2002 to October 1, 2002
Bottom: October 1, 2001 to October 1, 2002
July 1, 2002
to
October 1, 2002
Illinois
Indiana
Iowa
Michigan
Wisconsin
Seventh District

0
+1
+2
+4
+1
+2

October 1, 2001
to
October 1, 2002
+4
+5
+7
+10
+7
+7

–2
+6
II

I
0
+5

+2
+6

+6
+8
V
III

*Insufficient response.

VII
XIV

+3
+8

IV

+1
+5 VIII

0
+10

–1
+9

*

*

+1
+7

XV

IX
+2
+3

+2
+8

X

XI
0
+3

XVI
0
+4

The average year-over-year increase in District farmland values was 7 percent. Michigan, at one end of the range,
recorded a 10 percent gain, while Illinois at the other end reported a 4 percent gain. These gains were supported by
demand from nonfarm investors, which seems to have increased as other investments have tumbled and as cities continue to expand. Fueled by demand from the nonfarm sector,
27 percent of Seventh District bankers anticipated farmland
values to rise, with only 6 percent seeing a fall. Only in
Wisconsin was there a higher proportion of respondents that
expect farmland values to fall than rise during the next three
months. At the other end of the spectrum, 44 percent of the
Iowa bankers that responded predicted a rise in farmland
values, reflecting the outstanding yields in much of the state.

Credit conditions
In the third quarter of 2002, agricultural banks had more
funds available to lend, but there was flat demand for agricultural loans. Over 30 percent of the bankers reported
they had more funds available during July, August and September than they had a year earlier. All District states reported improved funds availability, but a larger proportion
of bankers in Illinois, Michigan, and Wisconsin noted increased funds availability. The index of fund availability was
124, highest of the year (see table on page 3). At the same
time, 24 percent of the bankers reported higher demand for
non-real estate loans, while 25 percent reported a decline.
Thus, the index of loan demand dropped to 99, the lowest
since an index of 91 last year at this time. There was very
little increased demand for non-real estate loans in Michigan
reported for last quarter, though the proportion of banks
reporting decreases was also the lowest in the District.
Despite the continued pressures on farm incomes in
most of the District, the respondents indicated that non-real
estate farm loan repayment rates had improved from last
quarter, but had fallen since last year. About 30 percent of
the bankers reported lower rates of loan repayment, while
only 6 percent reported higher rates. These numbers increased the index of loan repayment rates to 76. Moreover,
there were more renewals and extensions, with 30 percent,
on average, of the bankers noting an increase, and only
7 percent noting a decrease. Lenders in Michigan and
Wisconsin reported the lowest levels of loan repayments,
as well as the highest levels of renewals and extensions.
With signs of increased problems in agricultural loans, banks
tightened collateral requirements, with 21 percent requiring
a higher level of collateral in the past three months. Very
few banks reported lower amounts of collateral required
for non-real estate loans.
Offsetting the impact of tighter collateral requirements to some extent, banks reported once again that farm

loan interest rates had declined. As of October 1, the District average for interest rates on new operating loans had
fallen to 7.17 percent, more than 325 basis points lower than
the cyclical peak of two years ago. And, at an average of
6.83 percent, interest rates for farm mortgages were down
over 235 basis points from the last peak. The spread widened a bit, another indication of heightened uncertainty in
the agricultural sector.

Looking forward
Comparing the fourth quarter of 2002 with the fourth quarter a year ago, 23 percent of the bankers reported that they
expect higher non-real estate loan volume, while 23 percent
expect lower volume. Respondents look for increases primarily in operating loans (35 percent) and Farm Service
Agency (FSA) guaranteed loans (27 percent). Only a fifth
foresee higher real estate loan volume. A majority of the
respondents indicated that they expected loan volumes
would remain the same in the fourth quarter of this year
compared with a year ago. However, in Wisconsin over
40 percent anticipate lower volumes for both real estate and
non-real estate loans, with a similar percentage anticipating
a rise in operating loans. Based on record yields and higher corn and soybean prices than last year, 29 percent of Iowa
respondents expect higher farm machinery loan volume,
the only state with a sizeable increase.
The increasing reliance on loan guarantees seems to
have slowed. Bankers were asked to indicate if they expect
to rely more heavily on the USDA’s FSA farm loan guarantees during October through December than they did during the same period a year ago.1 Although 27 percent of the
respondents indicated that more loans would have FSA guarantees, 13 percent indicated a reduction in their utilization
of the guarantees. Together these numbers represent a
slowing in the increased use of FSA guaranteed loans.
The most notable characteristic of the farm real estate
market was the 65 percent of bankers that expect higher

Quarterly District farm loan interest rates
percent
13

11

Farm
operating
9

Farm real
estate
7
1990

’92

’94

’96

’98

’00

’02

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)

1998
Jan-Mar
Apr-June
July-Sept
Oct-Dec

134
127
117
113

113
102
104
121

84
74
60
57

68.9
72.7
72.0
70.3

9.52
9.54
9.43
9.09

9.51
9.55
9.41
9.07

8.50
8.52
8.33
8.06

1999
Jan-Mar
Apr-June
July-Sept
Oct-Dec

120
115
109
107

119
107
94
104

40
50
63
72

69.9
71.7
72.7
72.7

9.03
9.11
9.32
9.44

9.01
9.08
9.28
9.41

8.06
8.18
8.42
8.59

2000
Jan-Mar
Apr-June
July-Sept
Oct-Dec.

121
109
106
105

95
76
82
92

77
72
77
81

72.9
75.5
76.9
74.9

9.78
10.43
10.17
9.92

9.72
10.14
10.14
9.90

8.89
9.21
9.18
8.90

2001
Jan-Mar
Apr-June
July-Sept
Oct-Dec

118
106
91
101

101
109
127
129

67
73
86
75

75.0
75.1
74.9
72.8

9.16
8.60
8.01
7.41

9.17
8.58
8.07
7.51

8.23
7.91
7.47
7.21

2002
Jan-Mar
Apr-June
July-Sept

108
105
99

118
120
124

66
71
76

72.7
75.1
75.8

7.33
7.28
7.17

7.48
7.35
7.23

7.22
7.08
6.83

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

demand from nonfarm investors for the purchase of agricultural land in their areas over the next six months compared
to a year ago. Some bankers speculated that investors pulled
out of the stock market to invest in farmland. Respondents
see the volume of farmland transfers increasing as well.
Only in Iowa and Illinois (to a lesser extent) did bankers anticipate greater interest by farmers in the purchase of
agricultural land. A majority of Wisconsin bankers foresee
a retreat in interest in land by farmers, especially as they
expect an increase in forced sales or liquidation of farm assets
among financially stressed farmers. In fact, across the District bankers foresee some increase in forced sales and liquidations over the next six months compared with last year.
Financially stressed operations not only face low prices for
many agricultural products, but also must deal with disruptions due to the implementation of the Farm Security and
Rural Investment Act of 2002 and uncertainty concerning
the passage of emergency federal farm aid. Even though farmland values continued to rise this quarter, and most likely
for the near future, there seems to be a spreading unease
about the future of agriculture in much of the District.
David B. Oppedahl, Associate economist

1
FSA guarantees apply to ownership and operating loans to
farmers who do not meet the standards of conventional lenders. Guarantees may apply up to 90 percent of the loan principal, and lenders may resell the guaranteed portion in a secondary market.

AgLetter (ISSN 1080-8639) is published quarterly by the Research
Department of the Federal Reserve Bank of Chicago. It is prepared
by Jack L. Hervey, senior economist, and members of the Bank’s
Research Department, and is distributed free of charge by the Bank’s
Public Information Center. 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.
To subscribe, please write or telephone:
Public Information Center
Federal Reserve Bank of Chicago
P.O. Box 834
Chicago, IL 60690-0834
Tel. no. 312-322-5111
Fax no. 312-322-5515
AgLetter is also available on the World Wide Web at
http://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.)

October
October
October
October
October
October
October
October
October
October
October

95
101
2.36
94.50
5.16
4.41
87
32.60
67.80
11.9
54.0

–4.0
–8.2
–4.5
–0.1
–4.3
4.8
1.2
19.9
–0.3
2.6
–6.7

1
15
28
–4
26
54
–16
–20
–3
–24
–10

2
11
36
11
16
56
–10
–22
–4
–5
–19

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

October
October

181
177

0.2
0.1

2
1

4
4

September 1
September 1
September 1
September
September
October

1,599
208
1,740
2.20
1.64
12.0

N.A.
N.A.
N.A.
–10.9
0.1
3.1

–16
–16
–19
4
8
2

–7
–28
–26
–3
5
2

July
July
July
July

16,269
7,862
8,407
N.A.

19.5
22.0
17.2
N.A.

–4
7
–12
N.A.

1
13
–8
N.A.

September
August
September
August

3,946
159
31
94

–4.2
–4.8
–17.0
17.0

1
–30
–2
2

–3
–15
–40
–13

October
October
October
October

7,562
5,157
2,405
779

59.6
33.2
177.4
25.0

1
5
–7
–5

0
–1
4
–7

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.)
Receipts from farm marketings (mil. dol.)
Crops**
Livestock
Government payments
Agricultural exports (mil. dol.)
Corn (mil. bu.)
Soybeans (mil. bu.)
Wheat (mil. bu.)
Farm machinery (units)
Tractors, over 40 HP
40 to 100 HP
100 HP or more
Combines
N.A. Not applicable
*20 selected states.
**Includes net CCC loans.