Nationally, farmland values may be on a slight rise or stable, but in the Midwest, prices are down 1% from a year earlier. Agricultural credit conditions in the Midwest power states are also weaker than a year ago, according to a recent update from the Federal Reserve Bank of Chicago, Ill.

According to a new report from the U.S. Department of Agriculture, the U.S. farm real estate value -- a measurement of the value of all land and buildings on farms -- averaged $3,160 per acre for 2019, up $60 per acre (1.9%) from 2018. The U.S. cropland value averaged $4,100 per acre, an increase of $50 per acre (1.2%) from the previous year, while the U.S. pasture value averaged $1,400 per acre, up $30 (2.2%) from 2018.

The Chicago Fed reported in its recent "AgLetter" that farmland values in the Federal Reserve's Seventh District were down 1% in the second quarter of 2019 versus a year earlier. Values for “good” agricultural land in the district were unchanged from the first quarter to the second quarter of 2019, according to a survey of 157 bankers.

Iowa and Michigan had year-over-year dips in their farmland values, but Illinois, Indiana and Wisconsin farmland values held steady. After being adjusted for inflation with the Personal Consumption Expenditures Price Index (PCEPI), Seventh District farmland values were down 2% in the second quarter of 2019 from the second quar­ter of 2018; the streak of year-over-year declines in real farm­land values was extended to five full years.

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The USDA report stated that Iowa farmland values in 2019 dropped 1.1% to an average of $7,190, although many states were able to stabilize or increase. For instance, Ohio farmland values averaged $6,290 -- a 1.5% increase. Nebraska experienced a 3.6% increase in prices, but the average farm real estate value was just $2,850. Illinois farmland values held steady at $7,280, USDA reported.

David Oppedahl, senior business economist with the Chicago Fed, wrote in the "AgLetter" that muted expectations for farm income continued to be a factor in sliding real farmland values. A significant portion of Midwest farm income depends on corn and soybeans. Because of unusually wet weather, many farmers had to delay planting corn and soy­beans this year, and a much higher share of fields than nor­mal were not even planted in 2019.

Oppedahl added that feed costs have risen enough to squeeze the profitability of livestock producers. Many of them were already facing lower prices for their products than a year ago (with milk prices being an exception). USDA’s June index of prices received for livestock products was down 2% from a year earlier, he noted.

Credit conditions

In the second quarter of 2019, agricultural credit conditions for the Seventh District were weaker than a year ago, and repayment rates for non-real-estate farm loans were lower than a year earlier. Agricultural credit conditions in the second quarter of 2019 deteriorated relative to a year earlier.

“The Midwest agricultural producers have been struggling with the income issues, and that has led to a deterioration in credit conditions. As you look at their balance sheets, they're not in as good position financially, and this is leading to repayment problems as well as a higher rate of loans that are being renewed and extended and not paid off fully at the end of the year," Oppedahl explained.

The portion of the district’s agricultural loan portfolio reported as having “major” or “severe” repayment problems (6.2%) had not been higher in the second quarter of a year since 1999. In addition, renewals and extensions of non-real-estate farm loans in the Seventh District were up from a year ago. For the April through June period of 2019, the demand for non-real-estate farm loans was higher than a year earlier, but the availability of funds for lending by agricultural banks was lower.

Average nominal interest rates for agricultural real estate and operating loans decreased during the second quarter of 2019, while the average rate for feeder cattle loans edged up, the Chicago Fed reported.

Oppedahl stated, "The overwhelming message from farmers is that, 'We're under stress, and it's helpful that the government's providing some extra assistance,' but at the same time, it's a very challenging environment, and they hope to get back to more normal trading relationships so that exports can resume to some of the countries that have cut back."