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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1930	

AgLetter

November 2005

basis points lower than the most recent cyclical peak in
2000. The average loan-to-deposit ratio inched up, equaling
the high set in 2000, but was 3.3 percent below the ratio desired by respondents.

FARMLAND VALUES AND CREDIT CONDITIONS
Summary
Despite continued increases in the value of “good” agricultural land for the Seventh Federal Reserve District,
agricultural bankers painted a gloomier picture of credit
conditions. The survey results for 262 agricultural bankers
as of October 1, 2005, showed a quarterly gain in farmland values of 3 percent for the District. The 11 percent
rise in farmland values for the twelve months ending
September 30 remained close to the highest of the last
25 years. A third of the responding bankers expected
land values to increase in the fourth quarter of 2005.

Farmland values
The value of “good” agricultural land in the District continued to climb in the third quarter of 2005, rising 3 percent for
the quarter. The quarterly results for District states (see map
and table below) varied from no gain in Indiana to 4 percent
gains in Iowa and Wisconsin. Bankers continued to comment
on the key role tax deferred exchanges play in boosting farmland values. The year-over-year increase in District farmland
values averaged 11 percent. Wisconsin had the largest gains
in land values, closely followed by Illinois, Indiana, and
Iowa. Michigan farmland values increased the least, reflecting greater economic distress relative to other District states.
Consequently, Michigan’s slower growth in farmland values
was due in part to less pressure from development.

Agricultural credit conditions in the third quarter
of 2005 deteriorated from a year ago according to District
bankers. Loan repayment rates in the District fell below the
levels of a year ago, the first decline in two years. Renewals
and extensions of loans increased in the third quarter relative to a year earlier. The proportion of banks requiring
more collateral was larger than in recent quarters, with 86
percent of respondents keeping collateral requirements unchanged. Moreover, the availability of funds was less than
the previous year for the first time since 2000, though loan
demand rose compared to a year ago. Average interest rates
on agricultural loans increased again, still more than 200

The proportion of respondents expecting farmland
values to go up in the next three months declined to a
third. Only in Wisconsin did more than a third (45 percent)
expect farmland values to rise during the fourth quarter of
2005. Overall, almost two-thirds anticipated that farmland
values will be stable from October to December.

Percent change in dollar value of “good” farmland
Top:
July 1, 2005 to October 1, 2005
Bottom: October 1, 2004 to October 1, 2005
	
	
	
Illinois	
Indiana	
Iowa	
Michigan 	
Wisconsin	
Seventh District	

July 1, 2005	
to	
October 1, 2005	
+3	
0	
+4	
+3	
+4	
+3	

October 1, 2004
to
October 1, 2005
+12
+11
+11
+4
+14
+11

VI
+5
+11
II

I
+4
+9

+3
+13

+3
+10
V
+5
III +14

*
VII
+4
+18

IV

XIV
*

X
+6
+11 VIII

+2
+12

*Insufficient response.

XII

*

IX
–1
+11

XV

XI
+2
+12

XVI

+3
+10

–1
+12

respondents said that the state faces the bleakest net cash
income forecast with over 80 percent seeing declines
from crops, without much prospect of livestock increases.
Government payments helped compensate for the loss of
market income, increasing by $13.3 billion from disbursements in 2004. The stream of government payments has
also contributed to the increases of farmland values.

1. Real net farm income
billion 2004 $
90

government payments

75
60
45
30
15
0
1980

’85

’90

’95

2000

’05*

*Projected.
Source: Data from USDA.

Strong demand for farmland among nonfarm investors remained the dominant factor producing these expected
increases, even as demand among farmers cooled. More
respondents thought interest by nonfarm investors to acquire
farmland will rise rather than fall (57 percent versus 9 percent) over the next three to six months. However, 5 percent
more bankers expected demand among farmers to go down
than up, with about half seeing farmer demand unchanged.
This perception was strongest in Illinois, possibly because of
lower corn and soybean yields due to drought. In contrast,
Indiana and Wisconsin respondents had expectations for
higher demand by farmers. Half of the responding bankers
anticipated the volume of farmland transfers to remain unchanged during the fall and winter, while almost 40 percent
expected higher volumes of transfers (especially in Illinois).
One explanation for the lower interest among
farmers to acquire farmland this fall and winter relates to
the drop in net farm income from the record set in 2004
(see chart 1). The U.S. Department of Agriculture (USDA)
estimated that net farm income this year will be $71.5
billion, down $11 billion from last year. The decrease
is primarily due to lower crop production, combined
with some lower crop prices. For District states the corn
harvest was forecast to be 5.48 billion bushels this year,
7 percent below 2004's record. District production of soybeans was estimated at 1.37 billion bushels, a 3 percent
decline from last year’s record harvest. Survey results for
the District echoed the USDA forecasts, as over 60 percent of the respondents expected decreased net cash farm
earnings over the next three to six months compared
with a year earlier for crop farmers. About 10 percent
more respondents expected higher rather than lower net
cash farm earnings for cattle and hog producers, while
the split was essentially even for dairy farmers. Illinois

Credit conditions
Most measures of credit conditions worsened in the third
quarter of 2005. A primary factor in this reversal from
a year ago is the predicted decline in net farm income.
Yet, even when adjusted for inflation, net farm income
in 2005 will be higher than almost all years prior to 2004.
Still, bankers indicated that non-real-estate farm loan
repayment rates fell from last year, ending a string of improvements fueled by higher agricultural prices and output. With 6 percent of the respondents reporting higher
rates of loan repayment and 18 percent reporting lower
rates, the index of loan repayment rates was 87, the first
dip below 100 in two years (see table on the next page).
Furthermore, loan renewals and extensions were up
from a year ago, with 22 percent of the bankers indicating an increase and 5 percent indicating a decrease. Only
Wisconsin had higher levels of loan repayments and
lower levels of renewals and extensions. Wisconsin may
have bucked the trend toward worsening credit conditions due to increases of over 20 percent in corn and soybean production compared with 2004, as well as a more
diversified agricultural sector.
Collateral requirements at District banks tightened
more than in recent quarters, with 13 percent requiring a
higher level of collateral in the past three months. Moreover,
fund availability was down from a year ago, for the first time
in over four years. With 15 percent of the bankers reporting they had more funds available during July, August, and
September than they had a year earlier and 18 percent reporting they had less, the index of fund availability was 97.
2. Quarterly District farm loan interest rates
percent
13

11

Farm
operating
9

Farm real
estate

7

5
1990

’92

’94

’96

’98

’00

’02

’04

’06

Credit conditions at Seventh District agricultural banks
		
		
		
		

	
	
	
	
	
Interest rates on farm loans
						
Loan	
Fund	
Loan	
Average loan-to-	
Operating	
Feeder	
Real
demand	
availability	
repayment rates	
deposit ratio	
loans1	
cattle1	
estate1

		
(index) 2	
(index) 2	
(index) 2	
(percent)	
(percent)	
(percent)	
								
2003
	 Jan–Mar	
109	
130	
79	
72.4	
6.61	
6.75	
	 Apr–June	
99	
138	
84	
72.7	
6.43	
6.52	
	 July–Sept	
95	
129	
86	
72.9	
6.41	
6.47	
	 Oct–Dec	
97	
127	
104	
71.8	
6.26	
6.35	

(percent)	

6.36
6.04
6.12
6.05

2004
	 Jan–Mar	
	 Apr–June	
	 July–Sept	
	 Oct–Dec	

116	
101	
109	
109	

131	
117	
111	
121	

128	
118	
112	
127	

73.2	
73.7	
74.5	
74.1	

6.22	
6.39	
6.57	
6.81	

6.28	
6.46	
6.61	
6.80	

5.87
6.23
6.28
6.39

2005
	 Jan–Mar	
	 Apr–June	
	 July–Sept	

117	
119	
115	

112	
101	
97	

116	
103	
87	

74.4	
76.3	
76.9	

7.07	
7.33	
7.68	

7.08	
7.30	
7.65	

6.63
6.74
7.02

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.
1
2

Non-real-estate loan demand rose again for the
seventh quarter in a row. More respondents (30 percent)
reported higher demand for non-real-estate loans from a
year earlier than reported a decline in demand (15 percent).
This set the index of loan demand at 115, down a bit from
last quarter. Iowa, followed by Illinois and Indiana, experienced the strongest demand for non-real-estate loans.
Farm loan interest rates increased again (see chart 2
and table above). As of October 1, the District average for
interest rates on new operating loans rose to 7.68 percent,
the highest level in four years. Interest rates on operating
loans ranged from 7.36 percent in Illinois to 7.86 percent
in Iowa. At 7.02 percent, interest rates for farm mortgages
were at the highest level in over three years. For farm real
estate loans, Illinois again had the lowest rate, 6.89 percent, and Wisconsin had the highest rate, 7.29 percent.
The District loan-to-deposit ratio was 76.9 percent,
matching the highest ever reading in 2000. Illinois (68.1
percent) pulled down the District average, as the other
states were near 80 percent or above. The percentage of
banks that reported being above their desired loan-todeposit ratio was 18 percent versus 47 percent below.

Looking forward
Responding bankers do not foresee improvement in
credit conditions over the fall and winter. In contrast
with last year at this time, more bankers (21 percent) expected an increase in forced sales or liquidation of farm
assets among financially stressed farmers than expected
a decrease (9 percent). These concerns were voiced by
35 percent more Illinois bankers, with almost 60 anticipating no change. In addition, respondents in all states

expected the volume of farm loan repayments to decrease over the fall and winter, particularly in Illinois.
For the period covering October, November, and
December of 2005 compared with the same period last
year, 33 percent of the respondents expected higher nonreal-estate loan volume. Only 10 percent expected lower
volume for the District. Bankers anticipated increases in
operating loans (49 percent), grain storage construction
loans (23 percent), and Farm Service Agency (FSA) guaranteed loans (26 percent). Given recent increases in input
costs and the piles of grain stored outdoors, these results
are not surprising. Only in Indiana did more bankers
foresee higher rather than lower real estate loan volume
in the fourth quarter of 2005.
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.
© 2005 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.)	

October	
October	
October	
October	
October	
October	
October	
October	
October	
October	
October	

110	
101	
1.74	
97.70	
5.44	
3.54	
122	
49.10	
96.0	
15.4	
53.4	

–6.0	
–9.8	
–8.4	
–1.3	
–5.7	
5.7	
0.0	
–1.6	
4.0	
0.7	
–21.9	

–4	
–9	
–19	
5	
–2	
3	
3	
–7	
5	
–1	
11	

–3	
–9
–18	
17
–18
3	
5	
33	
–2	
3	
–36	

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

October	
October	

199	
192	

0.2	
0.4	

4	
2	

8
6

September 1	
September 1	
September 1	
September	
September	
October	

2,112	
256	
1,919	
2.16	
1.74	
13.4	

N.A.	
N.A.	
N.A.	
–6.9	
–0.5	
2.7	

120	
129	
–1	
3	
–2	
4	

94	
44	
–6
–7	
4
–4	

June	
June	
June	

17,101	
7,370	
9,731	

–2.9	
7.3	
–9.4	

–9	
–1	
–14	

10	
–4
24

September	
August	
August	
August	

4,581	
146	
30	
85	

–5.5	
1.2	
51.5	
–7.1	

0	
–5	
181	
–18	

4	
14	
–12
–29

October	
October	
October	
October	

9,760	
6,901	
2,859	
549	

26.4	
10.2	
96.6	
–55.5	

–4	
2	
–16	
–50	

15	
18	
8	
1

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	
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
*23 selected states.
**Includes net CCC loans.
Source: Data from USDA, 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