Last year marked the first time since 1986 that quality Midwest farmland values declined, the Chicago Federal Reserve Bank reported after recently surveying bankers within the district. The Seventh Federal Reserve District had an annual decrease of 3% in “good” farmland values for 2014, but farmland values in the fourth quarter of 2014 remained largely the same as in the third quarter, according to 224 agricultural banks across the District (Figure 1). The Chicago Fed said half of those respondents expected the decline would continue through March 2015. Despite the decline, the Chicago bank reported the index of inflation-adjusted agricultural land values for the District was 68% higher at the end of 2014 than at its 1979 peak following the 1970s boom.
The Federal Reserve Bank of St. Louis reported that quality farmland prices within the Eighth District were close to unchanged in the fourth quarter of 2014, increasing on average 0.8% from the prior year; however, the bank said respondents remained pessimistic about farmland values over the next three months. Like the Seventh District, the majority of Eighth District bankers expected quality farmland prices to soften during the first quarter of 2015.
In the seven-state Tenth District Federal Reserve District, farmland values generally held steady in the fourth quarter of 2014 despite further declines in farm income, according to the Federal Reserve Bank of Kansas City’s quarterly Survey of Agricultural Credit Conditions. Most bankers surveyed in the district, however, said they expected cropland values to fall in 2015 alongside reduced expectations for farm income. “Although farmland values remained relatively stable, farm income continued to weaken across most of the Tenth District,” the bank noted.
Agricultural financial conditions remained a concern in the districts as crop farm income declines have increased demand for loans and loan repayment rates were expected to continue to decline.
Given the changes to credit quality, tighter credit standards have resulted, reported the Chicago bank. Thirty-one percent of the survey respondents in the Seventh District reported their banks had tightened credit standards for agricultural loans in the fourth quarter of 2014 relative to the fourth quarter of 2013, and 69% reported their banks had left credit standards essentially unchanged.
“Demand for operating loans to pay for crop inputs is expected to remain elevated, and some bankers expressed concern that loan repayment rates might deteriorate if weak profit margins persist throughout the year,” said economist Nathan Kauffman of the Federal Reserve Bank of Kansas City.
Federal Reserve Bank of Chicago senior business economist David Oppedahl reported that agricultural credit conditions in his district indicated only modest stress in the sector, adding that the vast majority of farm operations were expected to have no trouble qualifying for operating credit in 2015. “Thus, large numbers of forced sales of farmland are unlikely to occur in 2015.”