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Survey: Corn Belt Land Values Fall in Third Quarter

Federal Reserve Cites More Supply, Lower Farm Prices, and Tighter Credit.

Farmland values in the Corn Belt are slightly lower now than mid-year, according to the Chicago Federal Reserve. Don’t be surprised if that trend continues.

Todd Hatterman, land realtor and auctioneer at Vander Werff and Associates, knows one reason why.

“There is a lot of farmland coming on the market,” the Sanborn, Iowa, realtor explains. “And there will be a lot more in the next six or seven weeks.”

Hatterman’s projection is supported by data from the Seventh Federal Reserve Bank’s farmland values survey, which was released November 15.

Respondents to the survey expect weaker demand for farmland from October to December 2018, plus more farmland availability over the same time.

This – coupled with low commodity prices – is putting pressure on land prices.

The Seventh Federal Reserve Bank distributed results of its third quarter 2018 farmland values survey on November 15. According to 188 agricultural bankers in the district (which includes Illinois, Michigan, Iowa, Indiana, and Wisconsin), farmland values in the Corn Belt states are 1% lower in the third quarter of 2018 than in the second quarter. This was the first quarter-to-quarter decline for district agricultural land values since the fourth quarter of 2016 – nearly two years ago.

Furthermore, almost two thirds of survey respondents expect farmland values to decrease further in 2018.

That land values did not decrease more is due, in part, to exceptional crop reports, the Fed said in its summary. “In 2018, district-wide corn and soybean yields jumped to all-time highs (198 bushels per acre for corn and 59 bushels per acre for soybeans). That’s a 1.5% increase from 2017 for corn and an 8.7% increase for soybeans,” the report said. The USDA anticipates record harvests for both commodities. Plus, corn prices are slightly higher in 2018 than in 2019, although soybean prices are down 5.6% from last year.

Also, cattle, hog and milk prices are sharply lower in 2018 compared to 2017, having fallen 2.6%, 17%, and 9.8% respectively.

Finally, credit conditions are generally worse in 2018 than 2017, the Fed reports. The availability of funds for lending by ag banks was lower than a year earlier for the fifth quarter in a row. Plus, repayment rates on non-real estate farm loans were lower than a year ago, with 39% of the respondents observing lower loan repayment rates.

Following a farmland sale in early November, Vander Werff’s Hatterman said high-quality farmland holds its value much better than lower-quality land. While some buyers have a reserve of cash on hand for farmland purchases, that supply of cash is drying up. Those who need to borrow money will face a stiffer penalty if the Federal Reserve increases interest rates, as expected.

“If interest rates go up 2 or 3 points, that could definitely have an effect on land prices,” Hatterman says.

State July to Oct., 2018 Oct. 2017 to Oct. 2018
Illinois -1%

-1%

Indiana -2% +1%
Iowa -1% +1%
Michigan n/a n/a
Wisconsin -1% +1%
Seventh District -1% +1%

Source: Seventh Federal Reserve District

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