Increase In Farmland Values Restrained By Waning Grain Prices

Farmland values increased year-to-year in the Seventh Federal district by 1%, but decreased 1% relative to the fourth quarter of 2013. The quarter-to-quarter decrease was the first in five years. Indiana and Wisconsin led the district with 7% and 2% year-to-year increases in their farmland value. Iowa and Wisconsin were the only areas that saw increases from last quarter. A greater increase in year-to-year value was stymied by a fall in crop prices from a year ago. Corn and soybean prices decreased 37% and 8.5% respectively from the first quarter last year.



Of the bankers surveyed, over three-quarters anticipated farmland values to remain stable or increase during the second quarter of 2014. Demand for farmland decreased in the first quarter, with 26% of bankers reporting lower demand and only 19% reporting greater demand. The amount of farmland available for sale also decreased in the first quarter, with 51% of bankers reporting less farmland for sale in their area. Farmers were more active in purchasing farmland, increasing their amount of acres purchased during the quarter relative to investors. The increase in grain prices this spring was suggested as the reason for the increase in farmer purchases.

Cash rent values fell 2% year-to-year. This is the first time since 1999 that there was an annual fall in cash rents. The cause for the decline was due to lower expectations for profits in 2014, crop prices have declined since last fall providing farmers with leverage to negotiate lower rates for leases.

Credit

Credit conditions were mostly positive in the first quarter of 2014 when compared to 2013. Loan demand and available funds were both up for non-real estate loans. Loan repayment rates were down in comparison to the same time last year. The decline was due to the drought that has persisted through much of Iowa for longer than much of the surrounding area. The lasting drought affected last year’s production preventing farmers from repaying their debt used to finance their 2013 crop. This was made apparent by the increase in responders reporting loan renewals and extensions from 2013 into 2014, as well as the increase in required collateral for loans during the first quarter 2014.

Outlook

As farmers continue to struggle during the planting season, the outlook for crop prices continues to fluctuate. Following the United States Department of Agriculture (USDA’s) release of the World Agriculture Supply and Demand Estimates corn and wheat prices fell significantly on the report of an ample global supply for both crops. Many analysts have suggested the decline in corn and wheat prices was a premature overreaction to the report, especially with a significant number of acres in northern corn growing states still unplanted due to cold and wet weather. Farm income is expected lower for crop operations in 2014 due to lower speculated grain prices. Bankers overwhelmingly felt confident that farmland values will remain stable or increase through the second quarter.

The Federal Reserve Bank of Chicago’s fourth quarter survey of Farmland Values and Agricultural Credit Conditions Report is a summary of the Seventh District’s value of farmland, farm loan portfolio performance, and on-farm income. The Seventh District consists of the entire states of Iowa, and portions of Illinois, Indiana, Wisconsin, and Michigan.