Chicago Fed: Farmland Values Continue Upward Spiral

June 4, 2012 12:50 PM
Chicago Fed: Farmland Values Continue Upward Spiral
Agricultural land values in the Seventh Federal Reserve District continued their rapid rise at the start of 2012, but short of the torrid pace of 2011. With a 19% year-over-year increase in the first quarter of 2012, farmland values still appreciated substantially, according to the Federal Reserve Bank of Chicago Ag Letter, published in May.
From April 1, 2011 to April 1, 2012, "good" Iowa farmland values rose 27%; Illinois, up 20%; Indiana, up 15%; Wisconsin values, up 13%; with Michigan up 7%. For the quarter, all states were up, with Illinois values from January 1 to April 1 up the most, 8%. Almost two-thirds of reporting bankers anticipated agricultural land values to be stable during the second quarter of 2012, while a third expected further increases.
Farmland cash rental rates in 2012 climbed 17% from 2011 for the district—the second-largest increase in the history of the survey. Cash rental rates were up 20% in Iowa; 19% in Wisconsin; 15% both in Illinois and Indiana; and 12% in Michigan.
Agricultural credit conditions improved in the first quarter of 2012 compared with the first quarter of 2011. General stronger balance sheets enabled farmers to deal with credit problems. The index of non-real-estate agricultural loan repayment rates climbed to its highest level in the survey’s history, as 56% of bankers responding noted higher rates of repayment and only 2% said repayment rates were lower. There was also an improvement for loan renewals and extensions, with 37%; of the bankers reporting fewer and 4% reporting more in the first quarter this year than in the same period in 2011.
Farmers reportedly placed larger deposits than usual in banks, and farmers seemed to fund more of their operations with cash earnings rather than with bank credit. Only in Wisconsin was there evidence of greater loan demand. The index of demand for non-real-estate farm loans fell to 72, which was its lowest since the first quarter of 1987; 19% of bankers saw higher loan demand, and 47% saw lower demand. The share of banks below their desired loan-to-deposit ratio was 82%.
Competition in an environment with reduce loan demand led banks to lower interest rates further—to an average of 5.34% on farm operating loans and 5.08% on real estate loans, as of April 1, 2012. Both of these figures established new lows for the survey of interest rates.
For April through June, bankers anticipated lower volumes for operating, feeder cattle, dairy and FSA guaranteed loans. Growth was forecast in farm machinery, grain storage construction, and real estate loan volumes in the second quarter of 2012 compared with a year earlier.


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