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Federal Reserve study shows Farmland Values remaining steady, rising in certain areas

Posted on February 14, 2019 | By Andrew Wilson

 - AgLetter: February 2019 – Federal Reserve

This issue of Federal Reserve’s Ag Letter sheds some light on the current farmland market conditions in the 7th District. 

From our perspective: liquidity remains solid and location very much matters. But we concur that farmland values will remain steady in Indiana and Illinois with several bright spots and very few weak spots. Check out some of our key takeaways.

Farmland Values

  • Overall values of “good” farmland remained steady throughout 2018 with a 1% increase in the 4th quarter from the 3rd quarter
  • The only 7th District states with recorded changes were Iowa (↓) and Michigan (↑)
  • 2018 yielded a 2% decrease in overall farmland values when accounting for inflation
  • Increases in both corn and soybean yields resulted in a record year
  • The dairy sector continues to see struggle, and both milk and livestock prices were down in 2018

Credit Conditions

  • Both repayment rates and agriculture credit conditions dropped in Q4 2018
  • Financial difficulties and higher interest rates continue to stress loan repayment numbers on farmland
  • Credit standards for farmland loans are tightening, reported by 44% of those surveyed
  • Fund availability dropped from the previous year for the sixth consecutive quarter
  • The average loan-to-deposit ratio of the 7th District was higher in 2018 (79.0%) yet still roughly 3% lower than the average percent favored by bankers

2019 and Beyond

Due to the steady farmland values in our district, it’s estimated that only 2.4% of current borrowers will fail to qualify for new operating credit. These estimates are even lower in Indiana and Illinois thanks to record-setting yields, but other sectors and states contribute to these overall percentages. Experts expect to see higher agriculture loan volumes in 2019, as well as lower volumes in other areas such as grain storage, farm machinery, dairy and more. The decrease in future lending indicates that capital expenditures by farmers will most likely be lower in 2019 than in the previous year. However, we agree with 75% of surveyed bankers that farmland values will remain steady in Indiana and Illinois, leading to several bright spots and very few weak spots in Q1 2019 and beyond.

Want to take a more in-depth look? You can find the entirety of Federal Reserve’s February 2019 Ag Letter here.