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Editor’s note: The following was written by David B. Oppedahl, Fedaral Reserve Bank of Chicago senior business economist, for the bank’s November 2018 AgLetter.


In the third quarter of 2018, farmland values for the Seventh Federal Reserve District were up 1 percent from a year ago.

However, according to the 188 agricultural bankers who responded to the Oct. 1 survey, district farmland values were 1 percent lower in the third quarter of 2018 than in the second quarter. This was the first quarterly decline for district agricultural land values since the fourth quarter of 2016 (nearly two years ago).

Almost two-thirds of survey respondents expected the district’s farmland values to be stable during the fourth quarter of 2018, but 32 percent of them expected a decrease in farmland values in the final quarter of this year and only 2 percent expected an increase.

Agricultural credit conditions for the district deteriorated again in the third quarter of 2018. For the fifth quarter in a row, the availability of funds for lending by agricultural banks was down relative to a year ago. Yet, for the third quarter of 2018, the demand for non-real-estate farm loans was higher than a year earlier.

These results helped explain how the average loan-to-deposit ratio for the district established a new record of 79.4 percent. Moreover, repayment rates for non-real-estate farm loans were lower in the third quarter of 2018 relative to the same quarter last year, and loan renewals and extensions were higher.

Fed Farmland values

Farmland values

The latest results were in line with recent trends: While nominal farmland values had remained fairly stable during the past few years, real farmland values had been eroding since the third quarter of 2014.

Agricultural land values would have experienced more downward pressure in the absence of exceptional crop yields. In 2018, district-wide corn and soybean yields jumped to all-time highs (198 bushels per acre for corn and 59 bu./acre for soybeans).

The USDA expected the country’s corn harvest in 2018 to be the second largest on record; moreover, the national soybean harvest was forecasted to set another record.

For the third quarter of 2018, corn prices were 1.9 percent higher than a year ago, based on USDA data. But soybean prices were 5.6 percent lower than a year earlier. Accounting for larger supplies of crops and trade tensions, the USDA revised its price estimates for the 2018-19 crop year to a range of $3.20 to $4 per bushel for corn and a range of $7.60 to $9.60 per bushel for soybeans.

When calculated with the midpoints of these price intervals, the projected revenues from the 2018 district corn and soybean harvests would be up 8.8 percent and 0.1 percent from 2017, respectively.

Key livestock prices were lower in the third quarter of 2018 relative to the same quarter of last year. Compared with a year earlier, cattle, hog and milk prices were down 2.6 percent, 17 percent and 9.8 percent in the third quarter of 2018, respectively.

Hence, livestock operations — particularly dairies — faced some challenges, according to several survey respondents. For instance, one Michigan agricultural banker reported that “dairy enterprises have been hard hit by milk prices.”

Looking forward

Nearly two-thirds of survey respondents predicted farmland values to be stable in the fourth quarter of 2018, while 32 percent of responding bankers expected farmland values to decrease in the October through December period of 2018 and just 2 percent expected farmland values to increase. Also, more respondents anticipated weaker rather than stronger demand by farmers and nonfarm investors to acquire farmland this fall and winter compared with a year earlier.

Still, on the whole, respondents expected an uptick in transfers of available properties for sale. Twenty-six percent of the responding bankers forecasted an increase in the volume of farmland transfers relative to the fall and winter of a year ago, and 21 percent forecasted a decrease.

For the sixth year in a row, crop net cash earnings were expected to contract over the fall and winter from their levels of a year earlier, based on the predictions of survey respondents. Only 5 percent of survey respondents anticipated crop net cash earnings to rise over the next three to six months relative to a year ago, while 82 percent anticipated these earnings to fall.

According to the responding bankers, hog, cattle and dairy farmers were yet again expected to encounter diminished net cash earnings over the fall and winter relative to a year ago. Just 3 percent of the survey respondents predicted higher net earnings for hog and cattle operations over the next three to six months relative to a year earlier, while 65 percent predicted lower net earnings.

Similarly, 1 percent of survey respondents anticipated higher net earnings for dairy operations this fall and winter compared with a year ago, while 66 percent anticipated lower net earnings.

Additionally, survey respondents expected loan repayment rates to decline this fall and winter from a year ago; only 2 percent of the responding bankers forecasted a higher volume of farm loan repayments over the next three to six months compared with a year earlier, while 57 percent forecasted a lower volume.

Moreover, forced sales or liquidations of farm assets owned by financially distressed farmers were anticipated to increase in the next three to six months relative to a year ago, according to 61 percent of the responding bankers (only 1 percent anticipated a decrease).

District non-real-estate farm loan volume in the October through December period of 2018 was expected to be higher compared with the same period of 2017, mainly because of increases in the volumes of operating loans and loans guaranteed by the Farm Service Agency of the USDA.

An Iowa respondent emphasized the “concern from row crop farmers regarding interest rate increases next year and low commodity prices.” This concern was echoed by livestock operators. So, there was a decidedly downcast outlook for agriculture based on the latest survey responses.

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