Wisconsin Ag Connection - Midwest Farmland Values Down During Third Quarter of '09

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Midwest Farmland Values Down During Third Quarter of '09
Wisconsin Ag Connection - 12/03/2009

The value of farmland in the upper Midwest appears to be lower for the third consecutive quarter. According to the latest survey of agricultural lenders in the Seventh Federal Reserve District, farmland values between July through September 2009 were down four-percent from a year ago--but the value of 'good' agricultural land during the three-month period was up slightly from the previous quarter.

In the most recent questionnaire of 225 rural bankers, survey respondents noted that the weak farm economy continued to keep demand for agricultural real estate down. As a result, farmland values fell one percent in both Indiana and Wisconsin from the second quarter of 2009. Iowa and Illinois saw slight increases, but were still lower than year-ago levels.

Reserve Economist David Oppedahl says agricultural credit conditions in the third quarter were also weaker than a year ago.

"Lower demand for non-realestate loans in the third quarter of 2009 contrasted with increased funds availability at District banks," Oppedahl said. "Loan payment rates declined compared with the July through September period of 2008, whereas loan renewals and extensions rose. Farm operating and real estate loan interest rates were a bit lower. The banks' loan-to-deposit ratios averaged 75.3 percent, the lowest level in over a year."

He also noted that agricultural interest rates moved down to the lowest levels since 2004. As of October 1, the district average for interest rates on new operating loans was 6.17 percent. Interest rates on operating loans ranged from 5.22 percent in Indiana to 6.80 percent in Wisconsin. Interest rates for farm real estate loans fell to 6.13 percent, on average, for the District. Illinois had the lowest rate for farm mortgages, 6.07 percent, and Indiana had the highest rate, 6.25 percent.

Looking ahead, more of the responding bankers expected farmland values to slide rather than gain during the fourth quarter of 2009--though 69 percent expected stable values. Respondents also expect lower net cash earnings for both crop and livestock operations this fall and winter compared with a year ago.

"For crop farms, the combination of lower corn and soybean prices and relatively less relief from high input costs led 85 percent of responding bankers to predict decreases in net cash farm earnings over the next three to six months compared with earnings the previous year," he noted in the report.

And in another reversal from a year ago, 11 percent of the respondents anticipated higher volumes of farmland transfers from the previous fall and winter, whereas 37 percent anticipated lower volumes. With 52 percent expecting no change in the level of land transfers, farmland sales will likely slip below the pace of a year ago.

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