CHICAGO — A Seventh Federal Reserve District survey found “good” farmland values increased 1 percent from a year ago after three straight years of decline.
The district represents the northern one-third of Illinois and Indiana, most of Wisconsin and all of Iowa and Michigan.
With farmland values up slightly from Jan. 1, 2017, to Jan. 1, 2018, the district avoided exceeding three consecutive years of decline seen in 1984-1986.
In the fourth quarter of 2017, Indiana, Iowa and Wisconsin had year-over-year increases in agricultural land values of 2 percent, 3 percent and 2 percent, respectively, while Illinois saw a 1 percent decrease. The district’s agricultural land values were overall the same in the fourth quarter of 2017 as in the third quarter.
“That’s indicating some stabilization in farmland values. Land values had been decreasing for three years, so an increase of 1 percent in the 2017 numbers is a bit of a change, and it’s helpful for the asset base of agriculture and the district going forward,” said David Oppedahl, Federal Reserve Bank of Chicago senior business economist.
Of the 185 survey respondents representing agricultural banks across the district, over three-fourths expected farmland values to be stable during the first quarter of 2018.
The survey also focused on agricultural credit conditions, noting a further deterioration in the fourth quarter of 2017.
“There are certainly some credit troubles brewing in the agricultural community as the repayment rates for non-real estate farm loans have been dropping from a year ago for a number of quarters now,” Oppedahl said.
The index of non-real-estate farm loan repayment rates was at its lowest level since the third quarter of 2016. Repayment rates in the final quarter of 2017 were lower than in the same period of the previous year, with 2 percent of survey respondents reporting higher rates of loan repayment and 49 percent reporting lower rates.
Non-real-estate farm loan renewals and extensions in the fourth quarter of 2017 were higher than in the fourth quarter of 2016, as 44 percent of survey respondents reported more of them and just 3 percent reported fewer.
Additionally, the share of the district farm loan portfolio deemed to have “major” or “severe” repayment problems edged up to 6.1 percent in the fourth quarter of 2017 — the highest such share since the early 2000s.
“We’ve seen an increase in the delinquency rates that are showing up. So, it kind of comes down to there’s a large portion of the agricultural operators that are in tight shape, but are doing pretty well in terms of managing their finances, but then there are some that are definitely facing challenges that may require selling assets or ceasing operation,” Oppedahl said.
“The biggest factor in the current conditions of agricultural operators is the decrease in corn and soybean prices that has occurred over the last four or five years from very, very high levels relative to historical, and now we’re returning to levels of say 10 years ago.
“So, it’s a challenge for them to operate under the cost structure that had developed with higher prices, and now after a few years of this kind of reevaluation of the cost structure, some of the operations are getting back into better shape going forward. But at the same time it’s very small profits.”
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Livestock prices were generally higher in 2017 than in the previous two years. The index of prices for livestock and associated products in December 2017 was up 6 percent from a year ago and 3 percent from two years ago.
The average prices of eggs, hogs and cattle moved higher in 2017 — up 11 percent, 12 percent and 6 percent in December 2017 from a year earlier, respectively. However, in December 2017, milk prices, on average, were down 9 percent from a year ago.
“Those were very welcome for some of the livestock producers at the same time egg production was having better prices. But the dairy side was challenged and going into 2018 looks to be more of a challenging time ahead,” Oppedahl said.
“The bottom line for agriculture right now is that a lot of the crop and livestock prices have been down from where they were in the last five to 10 years when there was a bit of an increase in the stream of farm income.
“Now we’re dealing with very tight margins and a much more challenging environment that’s holding down land values, but now we’ve at least had a little bit of a return to a small increase.”