Farmland in the five states in the seventh district post substantial value gains, although bankers expect this growth to slow.
Drought conditions continue to hold on in some parts of the Midwest, and according to the Federal Reserve Bank of Chicago, the unfavorable weather conditions are lessening the value of farmland. On a year-over-year basis, farmland values in the Seventh Federal Reserve District gained 14% in the third quarter of 2013.
"Good" agricultural land values in the five states (northern Illinois, the majority of Indiana, Iowa, southern Michigan and southern Wisconsin) surveyed show only a 1% increase in the third quarter relative to the second quarter of 2013.
Percent Change in Dollar Value of "Good" Farmland
Top numbers shows percent change from July 1, 2013 to Oct. 1, 2013, while the bottom number shows percent change from Oct. 1, 2012, to Oct. 1, 2013.
According to the 195 agricultural bankers that provided responses for the Oct. 1 survey, this upward trend is not expected to continue.
Iowa Farmland Values Drop for First Time Since 2010
After leading the District in terms of year-over-year gains in farmland values from the first quarter of 2010 until earlier this year, Iowa land values show a 1% decline. David B. Oppedahl, Federal Reserve Bank of Chicago senior business economist, writes in the November 2013 AgLetter, that land in Iowa felt the impact of renewed drought conditions.
Oppedahl writes that the District’s quarterly uptick in farmland values occurred in spite of a significant downturn in corn and soybean prices. "Better-than expected crop yields for the District may have contributed to the momentum of its rising farmland values; however, in areas affected by back-to-back droughts, the loss of revenue from declines in crop prices and yields may have constrained farmland value gains," he writes.
A Downturn Expected
The respondents’ expectations leaned toward a decrease in farmland values in the fourth quarter of 2013, as only 4% anticipated an increase and 21% forecasted a decrease (75% foresaw stable farmland values).
Also, survey respondents predicted farmers’ demand to acquire farmland this fall and winter to be stronger than a year ago, whereas they expected the opposite for nonfarm investors’ demand.
Heading into the fall and winter, survey respondents sensed a shift in agricultural credit conditions. Loan repayment was anticipated to worsen. 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 relative to a year earlier, except in Wisconsin.