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Farmland values sliding? Some say yes

It's been another huge year for farmland values and credit conditions in the heart of the Corn Belt. But, more players in the region's ag lending sector say they're less bullish on these trends continuing in the next year, according to the results of the most recent ag credit and land values survey conducted by the Federal Reserve Bank of Chicago.

Land values are still trending higher and there is still less demand for non-real-estate loans for farmers in the Chicago Fed district comprising Iowa, much of Wisconsin, Michigan, northern Illinois and northern Indiana, says Fed business economist David Oppendahl.

"Agricultural credit conditions became more favorable overall compared with a year ago, although relatively

minor additional collateral requirements were reported," he says. "District agricultural land values were 19% higher in the first quarter of 2012 compared with the first quarter of 2011 -- a shade down from the year-over-year increases of the past three quarters."

Just as elsewhere in farm country, sustained higher grain prices have had a lot to do with the bullishness in the land sector and farmers' general financial standing. Recent sluggishness in both the crop and livestock sectors is starting to feed speculation among ag lenders that the next few months could see a slide.

"Upward pressures eased early in 2012. The USDA forecasted an easing of tight corn stocks because of an anticipated record fall harvest, leading to a lower estimated price interval of $4.20 to $5.00 per bushel for corn in the 2012–13 crop year," Oppendahl says. "Moreover, the prices for milk and hogs—the District’s biggest income generators from livestock—were down in 2012 relative to their values in the final quarter of 2011. Based on the USDA index of prices paid by farmers, input costs for agriculture rose 6.6% through the first quarter of 2012 compared with the first quarter of 2011. Thus, with possibly lower revenues for several outputs and higher costs for inputs, agriculture faces a more challenging road to profits in 2012 than in 2011."

Overall, Oppendahl says a third of the bankers responding to the Chicago Fed's latest survey say they expect land values to continue trending higher through June and two-thirds say they expect values to stabilize by mid-summer. Despite the dip, though, farmers' loan volume will likely stay on the decline, at least through the next month or so.

"The volume of non-real-estate farm loans was expected to decline during the period from April through June of 2012 compared with the same period of 2011, entirely because of responses from Illinois and Iowa. The respondents anticipated lower volumes for operating, feeder cattle, dairy, and FSA guaranteed loans," he says. "Growth was forecasted in farm machinery, grain storage construction, and real estate loan volumes in the second quarter of 2012 compared with the second quarter of 2011."



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