While crop prices have tumbled this year, farmland values have held fairly steady, according to two surveys of bankers released Aug. 14. In the heart of the Corn Belt, values for "good" farmland were actually 3% higher for the 12 months ending July 1, and 2% stronger than the first quarter, according to a banker survey by the Federal Reserve Bank of Chicago. Year-over-year farmland values were 3% higher in Illinois, and 1% higher in Wisconsin, with no year-over-year change in Indiana. Iowa was the only one among district states where values were lower, but barely so, at 1%.
"Yet these increases pale in comparison to the double-digit gains experienced in the past few years," the report says.
Moreover, farmland values in the Chicago Fed district strengthened 2% from the first quarter to the second quarter, with only Indiana posting a decline, but not much of one, at minus 1%. Wisconsin, driven by stronger dairy profits, led all district states with a 6% quarterly rise; Illinois was up 3%; and Iowa, up 1%.
In the months ahead, however, bankers expect to see a correction in the farmland market. Only 2% of bankers anticipate that farmland values will rise in the third quarter, while 30% expect them to fall and 68% look for them to be stable.
"Farmland values were partly buoyed by a spring rally in corn and soybean prices, which occurred before these crop prices started falling again in May," the Chicago Fed’s Ag Letter says.
But in the St. Louis Fed district, the correction in farmland values already has begun, bankers there say. Quality farmland prices were down 0.42% from the first quarter and down 3.5% year over year. Farmland prices have fallen 6.7% from peak levels reached in the fourth quarter of 2013. Bankers expect farmland prices to continue to decline in the third quarter, relative to last year, but they expect ranch and pastureland prices to rise slightly. The St. Louis Fed encompasses Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi.
At the same time values in the St. Louis Fed district are edging lower, cash rents have strengthened. Cash rents were up 4.9% from the first quarter and lenders expected them to remain steady during the third quarter. Ranch or pastureland rents, however, were down 4.9%.
In the Chicago Fed states, collateral requirements tightened somewhat in the second quarter relative to year-earlier levels, as 7% of those surveyed reported that their banks required more collateral. Less than 1% said their banks required less.
Repayment rates for non-real-estate farm loans deteriorated in the second quarter, with 8% of bankers reporting higher rates of loan repayment, while 15% noted lower rates. Still, agricultural loans with "major" or "severe" repayment problems made up less than 2% of the district loan portfolio. Also, bankers say that demand for non-real-estate loans was higher than a year earlier, and is likely to further increase in the third quarter.
In the St. Louis Fed report, lenders report weaker agricultural loan demand in the second quarter, but they expect strengthened demand for the third quarter. Interest rates for variable-rate loans rose modestly, while interest rates on fixed real estate loans dropped, but barely.
Lenders also report that while the outlook is more bearish for crop producer returns, it’s just the opposite for livestock producers, which is increasing demand for farmland in areas with high levels of livestock, such as Wisconsin.