Wisconsin Ag Connection - Banker Survey: Midwest Farmland Values Begin to Settle

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Banker Survey: Midwest Farmland Values Begin to Settle
Wisconsin Ag Connection - 05/28/2009

Farmland values in the upper Midwest are finally starting to simmer down after years of rapid increases. That's according to the latest survey of agricultural lenders in the Seventh Federal Reserve District. Based on a questionnaire of more than 227 rural bankers, there was a quarterly decrease of six percent in the value of good agricultural land for the first three months of this year, which was the largest quarterly decline since 1985. The year-over-year increase in district farmland values also eroded to just two percent in the first quarter of 2009. They say the growth in farmland cash rental rates moderated in the district so far in 2009, with an increase of seven percent.

The number of farms sold, the acreage sold, and the amount of farmland for sale were all below the levels of the prior year, indicated the participating bankers.

Reserve Economist David Oppedahl says agricultural credit conditions in the district--which include portions of Wisconsin, Iowa, Illinois, Michigan and Indiana--varied in strength, as these conditions on the whole were better during the first quarter of 2009 than in the first quarter of 2008.

"Higher rates of repayment on non-real-estate farm loans were conveyed by 22 percent of the respondents, while 17 percent conveyed lower rates, setting the index of loan repayment rates at 105 for the first quarter of 2009," Oppedahl noted while explaining the current trends. "Loan renewals and extensions were essentially unchanged from a year ago. Collateral requirements increased from last year, with 22 percent of responding banks requiring more collateral and less than one percent requiring less collateral."

Compared to a year ago, Wisconsin led the district with a six percent annual increase in good farmland, but was down seven percent from the previous quarter. Illinois and Indiana values going up about four percent for the year. Iowa's land values rose two percent from 2008.

State increases in cash rental rates were eight percent for Illinois, six percent for Indiana, eight percent for Iowa, and two percent for Wisconsin, while Michigan's cash rental rates declined.

So what's ahead? Oppedahl says respondents expected the volume of non-real-estate farm loans to grow during the second quarter of 2009 compared with the same quarter in 2008. The bankers further anticipated the volumes for operating and FSA-guaranteed loans would increase, while farm machinery, grain storage construction, feeder cattle, and dairy loan volumes would decrease. More of the responding bankers expected real estate loan volume from April through June of 2009 to decline rather than rise, though over two-thirds predicted that real estate loan volumes would be stable.