Farmland values stabilize in MidwestFarmland values stabilize in Midwest
Higher livestock revenues may have helped buoy agricultural land values in Iowa and Wisconsin.
August 14, 2017
Farmland values for the Federal Reserve Bank's Seventh District, which includes the states of Iowa, Illinois, Indiana, Wisconsin and Michigan, increased 1% from a year ago during the second quarter of 2017. This was the first year-over-year gain in three years.
Additionally, “good” agricultural land values in the district moved up 1% from the first quarter to the second quarter of 2017, according to results from a survey of 186 agricultural bankers reported in the latest "Ag Letter" published by the Federal Reserve Bank of Chicago, Ill.
“District farmland values seemed to stabilize in the first half of 2017, despite lower prices for corn and soybeans relative to a year ago,” the report said. “Moreover, 76% of survey respondents expected agricultural land values to be stable during the third quarter of 2017, while 2% expected them to increase, and 22% expected them to decrease.”
Moreover, the year-over-year changes in farmland values varied across different areas within states, particularly in Iowa, which saw price ranges down 1-2% in the western portion of the state, while those in central Iowa were up 5-7%.
District farmland values are expected to stay at their current levels or decline a bit in the third quarter of 2017, as 76% of responding bankers projected agricultural land values to be stable, 22% projected them to decrease and only 2% projected them to increase.
“In contrast, some relief for livestock producers seemed to have arrived in the form of rising prices for their goods,” the report noted. The U.S. Department of Agriculture’s June index of prices received for livestock products was up 10% from a year ago, although it was still down 11% from two years ago.
In June, prices received by farmers for important Seventh District products were above the levels from one year earlier: up 17% for milk, 17% for eggs, 5% for cattle (steers and heifers) and 3% for hogs (barrows and gilts).
“Given that Iowa and Wisconsin have larger shares of livestock production than the other district states, higher livestock revenues may have helped buoy agricultural land values in those two states,” the Fed report explained.
In the second quarter of 2017, agricultural credit conditions for the district slowed their downward trend. Repayment rates for non-real estate farm loans weakened relative to a year earlier in the second quarter of 2017 (but by the least since the fourth quarter of 2014), according to the report.
The proportion of the Seventh District’s agricultural loan portfolio reported as having repayment problems was nearly the same as a year ago. “Renewals and extensions of non-real estate farm loans continued their trend of increasing from a year ago, according to respondents,” the "Ag Letter" explained.
For the April through June 2017 period, demand for non-real estate farm loans was up again from a year earlier — as was the availability of funds for lending by agricultural banks. For the second quarter of 2017, the Seventh District’s average loan-to-deposit ratio was 74.4% — 5.5 percentage points below the average level desired by the responding bankers. On average, real interest rates for agricultural real estate, feeder cattle and operating loans shifted up in the second quarter.
For the third quarter of 2017, survey respondents anticipate that farm loan volumes will decrease for real estate lending and increase for non-real estate lending relative to the same quarter of 2016.
An Iowa banker commented, “Lower prices and dry weather in our area have farmers talking about meeting costs. Federal crop insurance will probably come into play.”
With the drought spreading, insurance payments may make up some portion of 2017 income for a sizable number of district crop farms.
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