CHICAGO — Agricultural land values across a large chunk of the “I” states remained stable for the first quarter of 2019, with the average farmland values unchanged from a year earlier.

The report from the Federal Reserve Bank of Chicago, covering the Seventh Federal Reserve Districts, found a 1% increase in “good” farmland values for the fourth quarter of 2018 and the first quarter of 2019, according to survey responses of 168 district agricultural bankers.

The district includes the upper two-thirds of Illinois and Indiana and all of Iowa, Wisconsin and Michigan’s Lower Peninsula.

The amount of farmland for sale in the three- to six-month period ending with March 2019 was slightly higher than in the same period ending in March 2018, even as the demand to purchase agricultural land was a bit lower, the report stated.

Also, the number of farms sold and the amount of acreage sold were roughly the same during the winter and early spring of 2018 compared to year ago.

Indiana and Iowa saw year-over-year decreases in farmland values of 1% and 2%, respectively, while there was no change in Illinois and Wisconsin.

“Somewhat surprisingly, Wisconsin did not have a year-over-year decrease in farmland values, despite being the lone state that experienced a quarterly decline,” the report stated.

The stability of district farmland values persisted even as the demand for agricultural land softened from a year ago and the supply on the market grew modestly.

As an Indiana banker noted in the survey, “There are people in rural communities who have really strong balance sheets and are in an offensive position, with the capability of buying land.”

That said, there was some downward pressure on farmland markets in the three- to six-month period ending with March 2019 relative to the same period ending with March 2018, given that 7% of the survey respondents reported higher demand to purchase farmland and 28% reported lower demand.

Also, there was an up-tick in the amount of agricultural land for sale during the most recent winter and early spring relative to a year ago, as 28% of the responding bankers reported more farmland was up for sale in their areas and 22% reported less.

Several comments by responding bankers that investor interest in farmland was robust, survey participants generally indicated that the mix of agricultural acres purchased by farmers and investors was about the same in the three- to six-month period ending with March 2019 as in the corresponding period ending with March 2018.

Cash Rent

Another indicator of weakening markets for farmland was a 3% decrease in cash rental rates for district agricultural ground from 2018 to 2019.

For 2019, average annual cash rents to lease farmland were down 2% in Illinois, 3% in Indiana, 4% in Iowa, 2% in Michigan and 4% in Wisconsin.

After being adjusted for inflation with the Personal Consumption Expenditures Price Index, district cash rental rates slipped 5% from 2018. This was the sixth straight year of declining real cash rents — the longest such downturn since 1981 when the survey started to track cash rents.

Even though the current streak of decreasing real cash rental rates is the longest one on record in the survey, the district’s index of inflation-adjusted cash rental rates fell by more in percentage terms during the 1980s.

The index of real cash rents was reduced by nearly 50% from 1982 to 1987. In nominal and real terms, both the index of farmland cash rental rates and the index of agricultural land values peaked in 2013.

As of 2019, the index of real cash rents dropped 36% below its level in 2013, reaching its lowest level since 2007; the index of real farmland values dropped only 10% from its 2013 peak — and was last lower in 2012.

As of March 2019, the corresponding six-year dips in real corn and soybean prices were even larger — at 53% and 47%, respectively, according to calculations using data from the U.S. Department of Agriculture.

“With the current earnings potential of farmland (reflected by cash rents and crop prices) declining relatively more than agricultural land values, farmland purchasers seem to desire more strongly either long-term income prospects or other characteristics over the near-term returns of farm ownership,” the report noted.

Credit Conditions

There was “a continued working capital erosion for our overall customer base,” reported an Iowa banker.

This sentiment was representative of the gradual decay in agricultural credit conditions for the district in recent quarters, including the first quarter of 2019.

The index of repayment rates for non-real estate farm loans edged down to 52, with 2% of responding bankers observing higher rates of repayment and 50% observing lower rates for the first quarter of 2019 relative to the first quarter of 2018.

Forty-two percent of the survey respondents reported higher levels of loan renewals and extensions over the January through March period of 2019 compared with the same period last year, while just 1% reported lower levels of them.

Credit tightening also continued in the first quarter of 2019; 28% of survey respondents noted that their banks required larger amounts of collateral for loans during the January through March period of 2019 relative to the same period of 2018, while none noted that their banks required smaller amounts.

Additionally, the share of loans guaranteed by the USDA’s Farm Service Agency in the portfolios of the reporting banks rose slightly to 8% for the district as a whole — FSA guarantees help some less credit-worthy farmers qualify for loans. Only Wisconsin’s share, at 17%, was higher than the district’s share, reflective of the difficulties the dairy sector has faced.

Looking Ahead

Seventy-five percent of responding bankers expected farmland values to be stable, 24% expected them to decline and 1% expected them to rise.

Survey respondents projected that the overall volume of non-real estate farm loans would increase in the district during the April through June period of 2019 relative to the same period of 2018, with 32% of responding bankers predicting higher levels of non-real-estate farm loans and 12% predicting lower levels.

While survey respondents expected higher volumes for both operating and FSA-guaranteed loans, they expected lower volumes for grain storage, farm machinery, dairy, and feeder cattle loans.

The overall volume of farm real estate loans was forecasted to be nearly the same in the second quarter of 2019 as in the second quarter of 2018.

With regard to 2018, an Indiana banker commented, “My customers were generally able to meet all their obligations and maintain their financial positions.”

But that banker also noted, “This year could get ugly.”

Given generally low commodity prices and weather disruptions, including flooding in some areas, 2019 could end up being quite a challenging year for the district’s agricultural producers.

Tom C. Doran can be reached at 815-780-7894 or Follow him on Twitter at: @AgNews_Doran.


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