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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago

AgLetter

Number 1954	

FARMLAND VALUES AND CREDIT CONDITIONS

Farmland values
With a 25 percent increase from a year ago for the third
quarter of 2011, District farmland values exhibited their
largest rise since 1977. Iowa’s agricultural land values led
the District with a year-over-year increase of 31 percent
for the third quarter of 2011 (see map and table below).
The District’s farmland values surged 7 percent from the
second quarter to the third quarter of 2011, matching the
highest previous quarterly gain since 1977.

Summary
At 25 percent, the year-over-year gain in agricultural
land values in the third quarter of 2011 for the Seventh
Federal Reserve District was the largest in just over three
decades. Moreover, at 7 percent, the quarterly increase in
the value of “good” farmland matched the highest since
the late 1970s. According to the 216 bankers who responded
to the October 1 survey, agricultural land values were
poised to rise in the fourth quarter of 2011 as well.

November 2011

Revisions were performed recently that affect the
changes in District and state agricultural land values back
to the fourth quarter of 1993 (for details, contact the author).
Once these revisions have been taken into account, the gains
in farmland values were larger than previously reported
in the AgLetter. In 2007, the index of inflation-adjusted
farmland values for the District passed the previous peak
of 1979 (see chart 1). Since District farmland values hit
bottom in 1986, the compound annual growth rate for
farmland values has been 5 percent (adjusted for inflation).
The revised path for District farmland values more closely
matches one based on farm real estate values (each year
as of January 1) from the U.S. Department of Agriculture
(USDA), which uses an acre-weighted average for the
five District states.

Credit conditions for agricultural producers in the
third quarter of 2011 remained favorable, as interest rates
on farm operating and real estate loans declined further.
However, there was also a slight tilt toward requiring higher
levels of collateral to qualify for loans. Repayment rates
for farm loans rose in the third quarter of 2011 relative to
those of a year ago, while loan renewals and extensions
declined. Funds availability relative to the prior year had
not been higher at District banks since 1987. Dampened
demand persisted for non-real-estate loans in the period
from July through September of this year compared with
the same period of 2010. Declining to a new post-1997
low, the average loan-to-deposit ratio was 69 percent for
the District.

Percent change in dollar value of “good” farmland
Top:
July 1, 2011 to October 1, 2011
Bottom: October 1, 2010 to October 1, 2011
	
	
	

Illinois	
Indiana	
Iowa	
Michigan 	
Wisconsin	
Seventh District	

July 1, 2011	
to	
October 1, 2011	

+  	
3
+  	
8
+  1	
1
+  1	
1
+  	
4
+  	
7

October 1, 2010
to
October 1, 2011

+23
+  9
2
+  1
3
+  6
1
+17
+25

XII

VI
+2
+11

II

I
+6
+32

+13
+32

+17
III +26

+11
+32

VII
+6
+25

IV

XIV

*

X
–1
+17 VIII

V

+11
+28

*Insufficient response.

*

*

IX
+7
+29

XV

+2
+25

XI
+3
+22

XVI

+11
+32

livestock earnings; less than 20 percent forecasted lower
earnings. Prices for hogs, cattle, and milk were 29 percent,
22 percent, and 7.6 percent higher this October than last
October, respectively. Moreover, feed costs had declined,
boosting net incomes from livestock. According to the latest
USDA forecasts, 2011 net farm income is anticipated to increase $24.5 billion from 2010, totaling $103.6 billion. The
rise in 2011 net farm income would stem from gains of
$34.7 billion in the value of crop production and $22.7 billion
in the value of livestock production, while purchased inputs
would be $28.0 billion higher. Elevated levels of farm income
and heightened demand for farmland continued to support
further gains in agricultural land values.

1.	 Indexes of Seventh District farmland values and USDA farm
	 real estate
index, 1981=100, adjusted by PCE

150
125

USDA index

100
75
50

Seventh District index

25
0
1970

’75

’80

’85

’90

’95

2000

’05

’10

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

Given that 39 percent of the survey respondents anticipated higher farmland values in the period from October
through December of 2011 and only 2 percent anticipated
lower farmland values, expectations overall favored continued increases in farmland values. This distribution of
bankers’ expectations was very similar to that for the previous quarter.
Demand to acquire farmland this fall and winter
looked to remain strong. This demand appeared to be
especially strong among farmers: About 60 percent of
respondents forecasted higher demand for farmland among
farmers over the next three to six months, whereas just
3 percent forecasted lower demand. In addition, 41 percent
of the responding bankers expected greater demand to
purchase farmland among nonfarm investors over the next
three to six months, whereas 16 percent expected lesser
demand. Higher volumes of farmland transfers compared
with the previous fall and winter were predicted: 48 percent
of respondents anticipated this outcome (versus 10 percent
who anticipated lower volumes). Unsurprisingly, the highest
farmland values in over three decades stoked expectations
of more acres up for sale in the next three to six months.
Survey respondents anticipated increased net cash
earnings for farm operations during the fall and winter
relative to the previous fall and winter. A slide in corn and
soybean prices this fall had not extinguished optimism
regarding farm incomes, as evidenced by 74 percent of
the responding bankers expecting higher net cash earnings
for crops and 9 percent expecting lower earnings over the
next three to six months. October corn and soybean prices
remained 37 percent and 17 percent above the levels of a year
ago, respectively. Hog, cattle, and dairy farmers were expected to see enhanced earnings this fall and winter as well.
Over 30 percent of the respondents forecasted higher

Credit conditions
Agricultural credit conditions continued to improve across
the District in the third quarter of 2011. Notably, interest
rates on farm loans trended below the previous quarter’s
record lows (see table on the next page). As of October 1,
the District average for interest rates on agricultural real
estate loans was 5.36 percent. Interest rates for operating
loans fell to 5.66 percent, on average, for the District. Iowa
had the lowest rate for farm mortgages (5.24 percent).
Indiana had the lowest rate for operating loans (5.44 percent).
In the third quarter of 2011, the index of funds availability had equaled its highest value since 1987. Given that
52 percent of the responding bankers indicated there were
more funds available during the third quarter of 2011 than
their banks had a year earlier and 3 percent indicated there
were fewer, the index of funds availability hit 149 (see
chart 2). Repayment rates on non-real-estate farm loans
rose above the level of the July through September period
of last year. The index of loan repayment rates remained
133, as 38 percent of the respondents observed higher
rates of loan repayment and 5 percent observed lower rates.
In addition, loan renewals and extensions on non-realestate agricultural loans were lower in third quarter of
2.	Index of funds availability for the Seventh District
index
160
140
120
100
80
60
1990

’95

2000

’05

2010

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

Credit conditions at Seventh District agricultural banks
		
		
		
		

		
2009
  	Jan–Mar 	
	 Apr–June	
	 July–Sept	
	 Oct–Dec	
	
2010
	 Jan–Mar	
	 Apr–June	
	 July–Sept	
	 Oct–Dec	
2011
	 Jan–Mar	
	 Apr–June	
	 July–Sept	

	
	
	
	
	
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)

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

109	
98	
90	
101	

127	
122	
138	
142	

79	
85	
114	
142	

73.7	
74.5	
73.2	
71.8	

6.13	
6.12	
6.05	
5.85	

6.25	
6.25	
6.14	
6.02	

6.04
5.99
5.81
5.70

81	
79	
81	

149	
145	
149	

146	
133	
133	

69.8	
70.3	
69.0	

6.01	
5.75	
5.66	

5.93	
5.91	
5.79	

5.80
5.62
5.36

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 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

b

2011 relative to the same period last year, with 4 percent
of the bankers indicating an increase in such activities
and 31 percent indicating a decrease.
Declining demand for non-real-estate loans persisted in the District during July, August, and September of
2011. Given that 18 percent of the respondents reported
higher demand for non-real-estate than a year ago and
37 percent reported lower demand, the index of loan demand was 81. However, non-real-estate loan demand
was up from the prior year for Indiana. District banks increased the amount of collateral required for loans in the
third quarter of 2011 compared with a year ago. Eleven
percent of the respondents reported that their banks required
more collateral, and 88 percent reported their banks did
not change their collateral requirements. The District’s average loan-to-deposit ratio was 69 percent—the lowest level
since 1997. This was, on average, 8.5 percentage points
below the desired levels reported by the respondents.

Looking forward
Further strengthening of agricultural credit conditions during the fall and winter was anticipated by respondents.
With 53 percent of the responding bankers expecting the
volume of farm loan repayments would rise over the next
three to six months compared with a year ago and just 3 percent expecting repayment rates would go down, current
loan repayment trends should continue. According to bankers participating in the survey, forced sales or liquidations
of farm assets among financially stressed farmers should
decline in the next three to six months in all District states.
Only 8 percent of the respondents forecasted more forced
sales or liquidations, and 42 percent forecasted fewer.
Non-real-estate loan volumes for the October
through December period of 2011 compared with the

same period of 2010 were predicted to be about the same,
with expected increases in Indiana and Iowa offset by
expected decreases in Illinois and Wisconsin. The volume
of livestock loans was forecasted to shrink for all District
states in the final quarter of 2011 relative to the final quarter
of 2010. However, for operating loans, farm machinery
loans, and grain storage construction loans, there were
more responding bankers who expected augmented
volumes than those who expected smaller volumes.
About 40 percent of respondents forecasted increases
in the volume of farm real estate loans during the fourth
quarter of 2011 relative to the fourth quarter of 2010, and
only 11 percent forecasted decreases.
David B. Oppedahl, business economist
(312) 322-6122 • david.oppedahl@chi.frb.org

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.
© 2011 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, 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.)	
Consumer prices (index, 1982–84=100)	
	 Food	

Percent change from
Latest		
period	
Value	
October	
October	
October	
October	
October	
October	
October	
October	
October	
October	
October	
September	
September	

Prior	
period	

Year	
ago	

Two years
ago

185	
206	
5.92	
181	
11.90	
6.94	
153	
69.00	
121.00	
19.90	
1.02	

3.4	
1.5	
– 7.1	
2.8	
– 2.5	
– 8.1	
0.7	
2.7	
3.4	
– 5.7	
7.6	

23	
26	
37	
63	
17	
18	
14	
29	
22	
8	
25	

38
36
64
72
26
55
39
80
43	
39
28

227	
231	

0.3	
0.5	

4	
5	

5
6

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.)*	

September 1	
September 1	
September 1	
September	
September	
September	

1,128	
215	
2,150	
2.22	
1.95	
14.8	

N.A.	
N.A.	
N.A.	
– 7.2	
3.3	
– 3.3	

– 34	
42	
– 12	
– 2	
4	
2	

– 33
56
– 3
– 1
– 2
6

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

August	
August	
August	
August	

10,869	
151	
44	
100	

– 7.8	
– 9.4	
44.7	
20.6	

31	
– 21	
– 25	
– 4	

45	
– 21	
– 21
47

	

	
	

Farm machinery (units) 							
	 Tractors, over 40 HP	
September	
7,140	
N.A.	
6	
13
	 	 40 to 100 HP	
September	
4,041	
N.A.	
6	
– 5
	 	 100 HP or more	
September	
3,099	
N.A.	
7	
50
	 Combines	
September	
1,256	
N.A.	
– 16	
– 7
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.