Nov 14, 2019Third quarter Midwest farmland values reported down by AgLetter
AgLetter reports farmland values for the Seventh Federal Reserve District in the third quarter of 2019 were 1 percent lower than a year ago. Values for “good” agricultural land in the third quarter of 2019 were 1 percent higher than in the second quarter
See the attached PDF for a full copy of the November Chicago Fed AgLetter.
Watch senior business economist David Oppedahl’s 2 minute video summary of this quarter’s AgLetter.
In the third quarter of 2019, farmland values for the Seventh Federal Reserve District were down 1 percent from a year ago, despite signs of strength in some areas. Moreover, according to the 170 District agricultural bankers who responded to the October 1 survey, values for “good” agricultural land were 1 percent higher in the third quarter of 2019 than in the second quarter. Although 76 percent of survey respondents expected the District’s farmland values to be stable during the fourth quarter of 2019, there was a downward tilt to the expectations of bankers, as only 6 percent of them anticipated an increase in farmland values in the final quarter of this year and 18 percent anticipated a decrease.
The District’s agricultural credit conditions slid yet again in the third quarter of 2019. Repayment rates for non-real-estate farm loans were down relative to the third quarter of 2018, and loan renewals and extensions were up. Demand for non-real-estate farm loans was higher than a year earlier. Also, for the first time since the second quarter of 2017, the availability of funds for lending by agricultural banks was up for a quarter relative to a year ago. In line with these results, the average loan-to-deposit ratio for the District edged down to 78.8 percent in the third quarter of 2019 from 80.2 percent in the second quarter (its all-time high). Average interest rates on agricultural loans moved down during the third quarter of 2019, which aided farm borrowers.
The District saw a year-over-year decrease of 1 percent in its farmland values in the third quarter of 2019. The District has not experienced a year-over-year change in its agricultural land values of greater than 1 percent over the past 12 quarters—an unprecedented streak of relative stability in farmland values. Nevertheless, there was substantial variation in farmland value changes among the District’s five states. Farmland values for Illinois and Wisconsin were down on a year-over-year basis (1 percent and 2 percent, respectively), while Indiana and Iowa farmland values were both unchanged from a year ago (see map and table below). The District’s agricultural land values were up 1 percent from the second quarter of 2019, although Illinois’s experienced a 1 percent quarterly decrease.
Challenging weather conditions during planting, a touch of drought in the summer, excess precipitation during harvest, and early frost all hampered District crop production in 2019. According to U.S. Department of Agriculture (USDA) forecasts, the five District states’ harvest of corn for grain in 2019 is projected to drop by 11 percent from 2018, to 5.88 billion bushels, and their soybean harvest is of farm assets owned by financially distressed farmers were anticipated to increase in the next three to six months relative to a year ago, according to 54 percent of the responding bankers (only 2 percent anticipated a decrease). The District’s non-real-estate farm loan volume in the October through December period of 2019 was expected to be higher compared with the same period of 2018. Similarly, the volume for District farm real estate loans was predicted to be higher in the fourth quarter of 2019 than a year earlier.
One responding banker from Indiana observed “an overall sense of unease among our farmers.” Furthermore, a survey respondent from Illinois commented on “trade issues causing most of the uncertainty and stress” among local bank customers. Though the farm sector is facing some volatility, current conditions could provide opportunities for some; as the Indiana banker wrote, “I expect this market will eliminate highly leveraged operators and allow others to expand their operations.”
– David B. Oppedahl, senior business economist