You are here

Farmland value gains slow -- Fed

The direction's the same, but the pace has fallen back a bit in the upward movement of farmland values in the Corn Belt, according to a recent report from the Chicago Federal Reserve Bank.

Now, that's got some ag lenders who responded to the Fed's recent survey of farmland values and credit conditions in Iowa, southern Wisconsin, northern Illinois and Indiana, and Michigan, saying it's reasonable to expect an increase in the number of issues customers may face in loan repayment, according to Chicago Fed economist David Oppendahl. And, like just about every issue facing the ag sector this summer, it's tied closely to the drought that's ravaged the region's crops.

"The drought put a damper on prospects for agriculture in the District. A few responding bankers thought repayment problems would creep up because of the drought," Oppendahl says. "It contributed to less rapid increases in farmland values during the second quarter of 2012."

That value rise was just 1% for "good" quality land, according to the Fed survey. Though still rising, the latest data compares to a 15% increase during the same period a year ago.

Even with crop yields projected to amount to just a fraction of the normal output in the Corn Belt, Oppendahl points to the vast majority of the region's farmers' crop insurance coverage as the reason there hasn't been a total dropout of farmland values. And, though the drought's expected to continue at least for the next few months, most ag lenders responding to the Fed's survey don't see Mother Nature shoving the land value trend into the red, at least in the next quarter or so.

"Responding bankers predicted that as the drought continues to spread across much of the District during the third quarter, farmland values would likely level off but not face much downward pressure from the drought’s effects. Only 4% of respondents forecasted farmland values to decline in the third quarter of 2012, whereas 22% of respondents forecasted farmland values to rise in the third quarter," Oppendahl says. "With over 70% of the respondents expecting stable agricultural land values for the third quarter of 2012, the consensus was for farmland markets to move sideways."