‘Fed’ flyover: Land values, credit conditions summarized

By Dave Natzke


Federal Reserve Banks provided land value (see Table 1), credit condition and interest rate (see Table 2) summaries from third-quarter ag lender surveys. As always, state and district averages may not reflect local conditions.



Q3 2013 average farmland values in the Federal Reserve Bank of Chicago (covering all or portions of Illinois, Indiana, Iowa, Michigan and Wisconsin) were up 14% from a year ago. However, the district’s ag land values saw a gain of just 1% compared to Q2 2013, following no increase in the Q1 2013, according to David Oppedahl, business economist. 

The district’s quarterly uptick in farmland values occurred in spite of a significant downturn in corn and soybean prices. But, among district states, Iowa felt the impact of renewed drought conditions and had the lowest year-over-year increase in ag land values (+9%), as well as the only quarterly decrease (-1%). Elsewhere, annual and quarterly ag land value gains, respectively, were seen in Illinois (+16%, +1%), Indiana (+18%, +2%), Michigan (+17%, +5%) and Wisconsin (+14%, +1%).

Ag lenders indicate a reversal of fortunes for farmland values, with only 4% anticipating higher farmland values in the Q4 2013; 21% forecast lower farmland values. The vast majority (75%) expect no change in farmland values for Q4 2013.  Survey respondents predict farmers’ demand to acquire land this fall and winter to be stronger than a year ago, whereas they expected the opposite for non-farm investors’ demand. 

Net cash farm earnings for crop and livestock operations were expected to move in opposite directions. Crop farmers faced the prospects of lower levels of net cash earnings this fall and winter, given the recent steep declines in crop prices. Reduced feed costs have been a boon for hog, cattle and dairy farmers. 

However, the prospects for dairy producers were not as rosy, since milk prices were off 6% from October 2012. About 15% of respondents expected higher net earnings for dairy operations over the fall and winter compared with a year ago, and 26% forecasted lower net earnings.

Ag credit conditions were mostly improved in Q3 2013, with repayment rates higher for non-real-estate loans, and loan renewals and extensions lower. Demand for non-real-estate loans was lower. Collateral requirements for loans tightened relative to the previous year, as 7% of the survey respondents reported that their banks required more collateral, and 1% reported that their banks required less.

Heading into Q4 2013, survey respondents sensed a shift in ag credit conditions. Loan repayment was anticipated to worsen. But, forced sales or liquidations of farm assets among financially stressed farmers should decline in the next three to six months relative to a year earlier, except in Wisconsin.


Kansas City

Falling crop prices dragged Q3 2013 farm income lower in the Federal Reserve Bank of Kansas City, but that didn't have a big impact on district farmland values, according to Nathan Kauffman, Omaha branch executive, and Maria Akers, associate economist. 

Growth in cropland values was only slightly slower than the previous two years. With drought still lingering in the Plains, irrigated cropland has posted the strongest annual value gains for the past year, with Q3 2013 values almost 22% above Q3 2012 levels. Year-over-year, nonirrigated cropland values increased 19%, while ranchland values were up almost 15%. Compared to Q2 2013, irrigated, nonirrigated and ranchland values rose 0.9%, 2.8% and 2.0%.

District bankers indicated demand for high-quality farmland outpaced supply, as fewer farms were for sale during the growing season.

Farmland value gains have continued to outpace increases in cash rental rates, highlighting the potential for a future adjustment in farmland values. Irrigated cropland values have also risen significantly faster than cash rents in recent years. An increasing number of bankers expected farmland values to plateau by the end of 2013.

Although persistent drought in the Western Plains stressed some crops, preliminary estimates suggested production would be relatively strong. However, the rebound in production may not have been enough to overcome the decline in prices, and more district bankers reported farm income fell short of year-ago levels. They noted some producers were holding grain inventories, hoping for higher prices in the future. Farm income was expected to remain soft for the remainder of the year despite some support from crop insurance and a gradual improvement in livestock sector profitability resulting from lower feed costs.

Shrinking incomes spurred demand for farm operating loans. More bankers noted a rise in short-term financing, particularly in Nebraska where the decline in the farm income index was steepest. Loan repayment rates generally held steady, but bankers noted more requests for loan renewals and extensions. Farm capital spending was expected to wane as producers concentrated on current cash flow needs and potentially retained inventories to sell next year.

Collateral requirements eased in Oklahoma and the Mountain States, held steady in Kansas and Nebraska, and tightened slightly in Missouri.

Interest rates on farm operating loans edged down and loan-to-value ratios for operating loans held steady. In contrast, survey respondents indicated the average fixed interest rate on farm real estate loans moved slightly higher in Q3 2013



Q3 2013 farmland values increased slightly and were above year-ago levels in the Federal Reserve Bank of Dallas (covering all or portions of Texas, New Mexico and Louisiana). Ranchland and irrigated cropland values increased almost 2% over last quarter, but dryland values were up only about 1%. The great majority of respondents continued to anticipate farmland values will remain unchanged over the next three months. 

Depending on where rain fell, crop conditions, farm income and credit conditions were mixed. Farm incomes decreased again during Q3 2013, and credit standards continued to tighten, although the vast majority of respondents noted no change in standards.

Loan repayment rates increased, and demand and volumes for agricultural loans continued to decline, as did loan renewals and extensions. The exception was operating loans, which posted increasing demand for the first time since Q2 2011.

Feeder cattle and dairy operating loans saw the steepest decline compared to both the previous year and previous quarter.


St. Louis

Farmland values and cash rents were down in Q3 2013 relative to the previous quarter in the Federal Reserve Bank of St. Louis (covering all or parts of Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee). 

Values for quality farmland across the district saw a decrease of 6% from the Q2 2013 average, with Q3 values averaging $5,332/acre, down from $5,672/acre in Q2 2013.  Despite this decline, quality-farmland values remain 9.1% higher than at the same point last year.

Bankers expect further erosion in values over the next three months.

According to the survey, the value of pastureland averaged $2,377/acre in Q3, a gain of 1.4% over the past four quarters.

Q3 2-13 cash rents averaged $181/acre, down slightly Q2. However, cash rents for ranchland or pastureland rose modestly. Bankers expect that cash rents for both quality farmland and ranch- or pastureland are expected to increase modestly over the next three months.

Farm income across the district increased modestly from the same quarter one year ago. Going forward, survey respondents expect Q4 2013 farm income levels to remain modestly above their levels from a year earlier. In addition, the survey indicated that capital and household spending increased modestly in the quarter.

The demand for farm loans and household spending was a bit less than expected in Q3 2013 – though still modestly above year-earlier levels. 


Richmond and Minneapolis

Reports from Richmond and Minneapolis districts were not yet available.



Table 1. Quarterly and annual changes in agricultural land values, Oct. 1, 2013

District Federal Reserve Banks


  Chicago Chicago Kansas City Kansas City Dallas Dallas St. Louis St. Louis


Quarter Annual Quarter Annual Quarter Annual Quarter Annual



+1% +14% +2% +14.6% +1.8% +5.6% -6.0% +9.1%



N/A N/A +2.8% +18.7% +0.9% +3.4% N/A N/A
Irrigated cropland N/A N/A +0.9% +21.5% +1.8% +8.5% N/A N/A

Source: Quarterly district Federal Reserve Bank reports


Table 2. Variable loan average interest rates, July 1 & Oct. 1, 2013

  Chicago Chicago Kansas City Kansas City Dallas Dallas St. Louis St. Louis
Type of loan July 1 Oct. 1 July 1 Oct. 1 July 1 Oct. 1 July 1 Oct. 1
Operating 4.94% 4.94% 5.77% 5.76% 5.94% 5.81% 4.97% 4.98%
Intermediate N/A N/A 5.58% 5.53% 5.8% 5.71% 5.19% 5.18%
Real estate 4.65% 4.68% 5.38% 5.44% 5.47% 5.47% 4.69% 4.84%

Source: Quarterly district Federal Reserve Bank reports



District reports available

To see individual Federal Reserve district reports, go to these websites:



• http://research.stlouisfed.org/publications/afm/