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Farmland Values and Credit Conditions

August 21, 2013
Farmland For Sale
  
 
 

CHICAGO--Acording to the latest AgLetter published by the Federal Reserve Bank of Chicago, for the second quarter of 2013, "good" farmland values were up 17 percent from a year ago in the Seventh Federal Reserve District, which consists of Illinois, Indiana, Iowa, Michigan and Wisconsin. However, agricultural land values registered no gain in the second quarter relative to the first quarter of 2013, according to a survey of 211 agricultural bankers. The last time there was no quarterly increase in agricultural land values was in 2009. Generally, the stellar year-over-year gains in farmland values across the five District states masked the comparative weakness of the quarterly results. Moreover, the percentage of survey respondents anticipating farmland values to fall during the third quarter of 2013 was the same as the percentage predicting them to rise (7 percent); 86 percent of responding bankers expected farmland values to be stable.

The District’s agricultural credit conditions were generally better in the second quarter of 2013 than a year earlier. The availability of funds for lending by agricultural banks was up relative to a year ago; the banks’ deposits were enhanced not only by high crop prices but also by payments for insured losses due to last year’s drought.

Repayment rates for non-real-estate farm loans were higher than a year ago, with 94 percent of the respondents’ agricultural loan portfolio having no significant repayment problems. Renewals and extensions of non-real-estate farm loans declined from the level of a year earlier. The responding bankers perceived that non-real-estate loan demand for the April through June period of 2013 was below that for the same period last year. For the second quarter of 2013, the District’s average loan-to-deposit ratio edged up to 64.6 percent—12.6 percentage points below the average level desired by survey respondents. Finally, interest rates on farm loans rose for the first time since early 2011.

Looking forward

Crop producers will face tighter cash flows as their revenues decline (especially if crop prices slide further). Yet, the responding bankers did not expect agricultural loan volumes to rise for the July through September period of 2013 relative to the same period last year. In fact, some categories, including operating loans and livestock loans, were anticipated to shrink in the third quarter of 2013 relative to their levels in the same quarter of 2012, according to the survey respondents. Falling crop prices should bring relief to livestock producers, whose profits have suffered on account of the high feed costs in recent years.

For More Information

View the Seventh Federal Reserve District report in its entirety.

Read the results of the Eighth Federal Reserve District report.

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